UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
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| (Mark One) | | |
| ☒ |
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended SeptemberJune 30, 20212022 |
| OR |
| ☐ |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to . |
Commission file number 001-37427
HORIZON GLOBAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware (State or other jurisdiction of incorporation or organization) | | 47-3574483 (IRS Employer Identification No.) |
47912 Halyard Drive, Suite 100
Plymouth, Michigan 48170
(Address of principal executive offices, including zip code)
(734) 656-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, $0.01 par value | | HZN | | New York Stock Exchange |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o | | Accelerated filer ☒ | | AcceleratedNon-accelerated filer o
| | Non-accelerated filer ☒ | | Smaller reporting company ☒ | | Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 1, 2021,August 4, 2022, the number of outstanding shares of the Registrant’s common stock was 27,286,64727,676,025 shares.
HORIZON GLOBAL CORPORATION
Index
Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made and give our current expectations or forecasts of future events. These forward-looking statements can be identified by the use of forward-looking words, such as “may,” “could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan” or other comparable words, or by discussions of strategy that may involve risks and uncertainties.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties which could materially affect our business, financial condition or future results including, but not limited to, risks and uncertainties with respect to: the impact of the COVID-19 pandemic on the Company’s business, results of operations, financial condition and liquidity; the overall impact of globalliquidity, including, without limitation, supply chain complexities on the Company and its business, including delays in sourcing key componentslogistics issues and other supply constraints, longer transport times, especially for container ships and U.S. trucking, and increased transportation costs;inflationary pressures; interest rate volatility; liabilities and restrictions imposed by the Company’s debt instruments, including the Company’s ability to comply with the applicable financial covenants related thereto;thereto or obtain any necessary amendments or waivers with respect to such financial covenants; market demand; competitive factors; supply constraints and shipping disruptions; material, logistics and energy costs, including the increased material and logistics costs resulting from the COVID-19 pandemic; inflation and deflation rates; the impact the conflict between Russia and Ukraine has on our business, financial condition or future results, including the duration and scope of such conflict, its impact on disruptions and inefficiencies in our supply chain and our ability to procure certain raw materials, as well as on our energy supply in Europe; technology factors; litigation; government and regulatory actions including the impact of any tariffs, quotas, or surcharges; the Company’s accounting policies; future trends; general economic and currency conditions, including recessionary conditions; various conditions specific to the Company’s business and industry; the success of the Company’s action plan, including the actual amount of savings and timing thereof; the success of the Company’s business improvement initiatives in Europe-Africa, including the amount of savings and timing thereof; the Company’s exposure to product liability claims from customers and end users, and the costs associated therewith; factors affecting the Company’s business that are outside of its control, including natural disasters and severe weather conditions (including those caused by climate change), pandemics, including the current COVID-19 pandemic, accidents and governmental actions; our ability to regain and remain in compliance with the New York Stock Exchange’s (“NYSE”) minimum market capitalization requirement; and other risks that are discussed in Part I, Item 1A, “Risk Factors.” in the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2020.2021. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as otherwise required by law.
We disclose important factors that could cause our actual results to differ materially from our expectations implied by our forward-looking statements under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2020.2021. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other conditions, results of operations, prospects and ability to service our debt.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS
(unaudited—dollars in thousands)thousands, except per share data)
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 17,350 | | | $ | 44,970 | |
| Restricted cash | | 5,500 | | | 5,720 | |
| Receivables, net | | 96,320 | | | 87,420 | |
| Inventories | | 164,270 | | | 115,320 | |
| Prepaid expenses and other current assets | | 13,510 | | | 11,510 | |
| Total current assets | | 296,950 | | | 264,940 | |
| Property and equipment, net | | 72,940 | | | 74,090 | |
| Operating lease right-of-use assets | | 38,290 | | | 47,310 | |
| Goodwill | | — | | | 3,360 | |
| Other intangibles, net | | 52,870 | | | 58,230 | |
| Deferred income taxes | | 1,220 | | | 1,280 | |
| Other assets | | 6,060 | | | 7,280 | |
| Total assets | | $ | 468,330 | | | $ | 456,490 | |
| Liabilities and Shareholders' Equity | | | | |
| Current liabilities: | | | | |
| Short-term borrowings and current maturities, long-term debt | | $ | 5,940 | | | $ | 14,120 | |
| Accounts payable | | 111,270 | | | 99,520 | |
| Short-term operating lease liabilities | | 11,120 | | | 12,180 | |
| Accrued liabilities | | 53,340 | | | 59,100 | |
| Total current liabilities | | 181,670 | | | 184,920 | |
| Gross long-term debt | | 290,340 | | | 251,960 | |
| Unamortized debt issuance costs and discount | | (29,000) | | | (20,570) | |
| Long-term debt | | 261,340 | | | 231,390 | |
| Deferred income taxes | | 3,650 | | | 3,130 | |
| Long-term operating lease liabilities | | 36,970 | | | 46,340 | |
| Other long-term liabilities | | 10,630 | | | 14,560 | |
| Total liabilities | | 494,260 | | | 480,340 | |
| Contingencies (See Note 10) | | 0 | | 0 |
| Shareholders' equity: | | | | |
| Preferred stock, $0.01 par: Authorized 100,000,000 shares; Issued and outstanding: None | | — | | | — | |
| Common stock, $0.01 par: Authorized 400,000,000 shares; 27,973,153 shares issued and 27,286,647 outstanding at September 30, 2021, and 27,089,673 shares issued and 26,403,167 outstanding at December 31, 2020 | | 270 | | | 260 | |
| Common stock warrants issued, outstanding and exercisable for 9,231,146 and 5,815,039 shares of common stock at September 30, 2021 and December 31, 2020, respectively | | 25,010 | | | 9,510 | |
| Paid-in capital | | 170,050 | | | 166,610 | |
| Treasury stock, at cost: 686,506 shares at September 30, 2021 and December 31, 2020 | | (10,000) | | | (10,000) | |
| Accumulated deficit | | (194,520) | | | (178,530) | |
| Accumulated other comprehensive loss | | (10,610) | | | (6,540) | |
| Total Horizon Global shareholders' deficit | | (19,800) | | | (18,690) | |
| Noncontrolling interest | | (6,130) | | | (5,160) | |
| Total shareholders' deficit | | (25,930) | | | (23,850) | |
| Total liabilities and shareholders' equity | | $ | 468,330 | | | $ | 456,490 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | | $ | 181,220 | | | $ | 222,120 | | | $ | 362,080 | | | $ | 421,310 | |
| Cost of sales | | (160,500) | | | (174,830) | | | (321,150) | | | (333,460) | |
| Gross profit | | 20,720 | | | 47,290 | | | 40,930 | | | 87,850 | |
| Selling, general and administrative expenses | | (31,030) | | | (35,960) | | | (64,800) | | | (69,740) | |
| Operating (loss) profit | | (10,310) | | | 11,330 | | | (23,870) | | | 18,110 | |
| Interest expense | | (8,310) | | | (6,980) | | | (15,980) | | | (14,030) | |
| Loss on debt extinguishment of Replacement Term Loan | | — | | | — | | | — | | | (11,650) | |
| Other expense, net | | (3,360) | | | (1,990) | | | (8,850) | | | (4,220) | |
| (Loss) income before income tax | | (21,980) | | | 2,360 | | | (48,700) | | | (11,790) | |
| Income tax expense | | (450) | | | (1,400) | | | (680) | | | (2,400) | |
| Net (loss) income | | (22,430) | | | 960 | | | (49,380) | | | (14,190) | |
| Less: Net loss attributable to noncontrolling interest | | (230) | | | (330) | | | (500) | | | (670) | |
| Net (loss) income attributable to Horizon Global | | $ | (22,200) | | | $ | 1,290 | | | $ | (48,880) | | | $ | (13,520) | |
| Net (loss) income per share: | | | | | | | | |
| Basic | | $ | (0.80) | | | $ | 0.05 | | | $ | (1.78) | | | $ | (0.50) | |
| Diluted | | $ | (0.80) | | | $ | 0.04 | | | $ | (1.78) | | | $ | (0.50) | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited—dollars in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| Net sales | | $ | 196,540 | | | $ | 201,630 | | | $ | 617,850 | | | $ | 485,370 | |
| Cost of sales | | (157,780) | | | (158,260) | | | (491,240) | | | (397,700) | |
| Gross profit | | 38,760 | | | 43,370 | | | 126,610 | | | 87,670 | |
| Selling, general and administrative expenses | | (32,430) | | | (34,810) | | | (102,170) | | | (93,760) | |
| Operating profit (loss) | | 6,330 | | | 8,560 | | | 24,440 | | | (6,090) | |
| Other (expense) income, net | | (1,720) | | | 690 | | | (5,940) | | | (1,430) | |
| Loss on debt extinguishment | | — | | | — | | | (11,650) | | | — | |
| Interest expense | | (6,970) | | | (7,560) | | | (21,000) | | | (23,970) | |
| (Loss) income from continuing operations before income tax | | (2,360) | | | 1,690 | | | (14,150) | | | (31,490) | |
| Income tax expense | | (410) | | | (100) | | | (2,810) | | | (170) | |
| Net (loss) income from continuing operations | | (2,770) | | | 1,590 | | | (16,960) | | | (31,660) | |
| Loss from discontinued operations, net of income tax | | — | | | — | | | — | | | (500) | |
| Net (loss) income | | (2,770) | | | 1,590 | | | (16,960) | | | (32,160) | |
| Less: Net loss attributable to noncontrolling interest | | (300) | | | (340) | | | (970) | | | (1,010) | |
| Net (loss) income attributable to Horizon Global | | $ | (2,470) | | | $ | 1,930 | | | $ | (15,990) | | | $ | (31,150) | |
| Net (loss) income per share attributable to Horizon Global: | | | | | | | | |
| Basic: | | | | | | | | |
| Continuing operations | | $ | (0.09) | | | $ | 0.07 | | | $ | (0.59) | | | $ | (1.19) | |
| Discontinued operations | | — | | | — | | | — | | | (0.02) | |
| Total | | $ | (0.09) | | | $ | 0.07 | | | $ | (0.59) | | | $ | (1.21) | |
| Diluted: | | | | | | | | |
| Continuing operations | | $ | (0.09) | | | $ | 0.06 | | | $ | (0.59) | | | $ | (1.19) | |
| Discontinued operations | | — | | | — | | | — | | | (0.02) | |
| Total | | $ | (0.09) | | | $ | 0.06 | | | $ | (0.59) | | | $ | (1.21) | |
| Weighted average common shares outstanding: | | | | | | | | |
| Basic | | 27,286,600 | | | 25,939,741 | | | 27,019,554 | | | 25,651,789 | |
| Diluted | | 27,286,600 | | | 33,329,106 | | | 27,019,554 | | | 25,651,789 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(unaudited—dollars in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Net (loss) income | Net (loss) income | | $ | (2,770) | | | $ | 1,590 | | | $ | (16,960) | | | $ | (32,160) | | Net (loss) income | | $ | (22,430) | | | $ | 960 | | | $ | (49,380) | | | $ | (14,190) | |
| Other comprehensive (loss) income, net of tax: | | |
| Other comprehensive loss, net of tax: | | Other comprehensive loss, net of tax: | |
| Foreign currency translation and other | Foreign currency translation and other | | (1,650) | | | 1,900 | | | (4,070) | | | (400) | | Foreign currency translation and other | | (2,280) | | | (130) | | | (390) | | | (2,420) | |
| Total other comprehensive (loss) income, net of tax | | (1,650) | | | 1,900 | | | (4,070) | | | (400) | | |
| Total other comprehensive loss, net of tax | | Total other comprehensive loss, net of tax | | (2,280) | | | (130) | | | (390) | | | (2,420) | |
| Total comprehensive (loss) income | Total comprehensive (loss) income | | (4,420) | | | 3,490 | | | (21,030) | | | (32,560) | | Total comprehensive (loss) income | | (24,710) | | | 830 | | | (49,770) | | | (16,610) | |
| Less: Comprehensive loss attributable to noncontrolling interest | Less: Comprehensive loss attributable to noncontrolling interest | | (300) | | | (340) | | | (970) | | | (1,010) | | Less: Comprehensive loss attributable to noncontrolling interest | | (230) | | | (330) | | | (500) | | | (670) | |
| Comprehensive (loss) income attributable to Horizon Global | Comprehensive (loss) income attributable to Horizon Global | | $ | (4,120) | | | $ | 3,830 | | | $ | (20,060) | | | $ | (31,550) | | Comprehensive (loss) income attributable to Horizon Global | | $ | (24,480) | | | $ | 1,160 | | | $ | (49,270) | | | $ | (15,940) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited—dollars in thousands)
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 26,440 | | | $ | 11,780 | |
| Restricted cash | | 92,130 | | | 5,490 | |
| Receivables, net | | 98,880 | | | 80,720 | |
| Inventories | | 165,030 | | | 162,830 | |
| Prepaid expenses and other current assets | | 15,110 | | | 12,340 | |
| Total current assets | | 397,590 | | | 273,160 | |
| Property and equipment, net | | 69,660 | | | 71,610 | |
| Operating lease right-of-use assets | | 37,040 | | | 37,810 | |
| Other intangibles, net | | 44,310 | | | 48,910 | |
| Deferred income taxes | | 1,720 | | | 1,750 | |
| Other assets | | 4,490 | | | 5,680 | |
| Total assets | | $ | 554,810 | | | $ | 438,920 | |
| Liabilities and Shareholders' Deficit | | | | |
| Current liabilities: | | | | |
| Short-term borrowings and current maturities, long-term debt | | $ | 4,440 | | | $ | 3,780 | |
| Accounts payable | | 125,490 | | | 102,190 | |
| Short-term operating lease liabilities | | 11,190 | | | 11,010 | |
| Accrued liabilities | | 47,380 | | | 44,870 | |
| Total current liabilities | | 188,500 | | | 161,850 | |
| Gross long-term debt | | 395,270 | | | 297,070 | |
| Unamortized debt issuance costs and discount | | (27,630) | | | (26,520) | |
| Long-term debt | | 367,640 | | | 270,550 | |
| Redeemable preferred stock, $0.01 par: Authorized 100,000,000 shares; Issued and outstanding: 41,000 and 0 shares at June 30, 2022 and December 31, 2021, respectively | | 41,040 | | | — | |
| Deferred income taxes | | 1,740 | | | 1,920 | |
| Long-term operating lease liabilities | | 33,550 | | | 35,930 | |
| Other long-term liabilities | | 7,900 | | | 8,920 | |
| Total liabilities | | 640,370 | | | 479,170 | |
| Commitments and Contingencies | | 0 | | 0 |
| Shareholders' deficit: | | | | |
| Common stock, $0.01 par: Authorized 400,000,000 shares; 28,362,531 shares issued and 27,676,025 outstanding at June 30, 2022, and 27,973,153 shares issued and 27,286,647 outstanding at December 31, 2021 | | 280 | | | 270 | |
| Common stock warrants issued, outstanding and exercisable for 10,206,146 and 9,231,146 shares of common stock at June 30, 2022 and December 31, 2021, respectively | | 28,050 | | | 25,010 | |
| Paid-in capital | | 172,400 | | | 170,990 | |
| Treasury stock, at cost: 686,506 shares at June 30, 2022 and December 31, 2021 | | (10,000) | | | (10,000) | |
| Accumulated deficit | | (259,130) | | | (210,250) | |
| Accumulated other comprehensive loss | | (10,100) | | | (9,710) | |
| Total Horizon Global shareholders' deficit | | (78,500) | | | (33,690) | |
| Noncontrolling interest | | (7,060) | | | (6,560) | |
| Total shareholders' deficit | | (85,560) | | | (40,250) | |
| Total liabilities and shareholders' deficit | | $ | 554,810 | | | $ | 438,920 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited—dollars in thousands)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | | | | Cash Flows from Operating Activities: | | | | |
| Net loss | Net loss | | $ | (16,960) | | | $ | (32,160) | | Net loss | | $ | (49,380) | | | $ | (14,190) | |
| Less: Net loss from discontinued operations | | — | | | (500) | | |
| Net loss from continuing operations | | (16,960) | | | (31,660) | | |
| | Adjustments to reconcile net loss from continuing operations to net cash (used for) provided by operating activities: | | |
| Adjustments to reconcile net loss to net cash used for operating activities: | | Adjustments to reconcile net loss to net cash used for operating activities: | |
| Depreciation | Depreciation | | 11,710 | | | 11,110 | | Depreciation | | 6,760 | | | 7,750 | |
| Amortization of intangible assets | Amortization of intangible assets | | 4,220 | | | 5,040 | | Amortization of intangible assets | | 2,180 | | | 2,970 | |
| Loss on debt extinguishment | | 11,650 | | | — | | |
| Amortization of original issuance discount and debt issuance costs | Amortization of original issuance discount and debt issuance costs | | 8,010 | | | 11,450 | | Amortization of original issuance discount and debt issuance costs | | 5,860 | | | 5,400 | |
| Deferred income taxes | Deferred income taxes | | 730 | | | (820) | | Deferred income taxes | | (40) | | | 1,120 | |
| Non-cash compensation expense | Non-cash compensation expense | | 2,590 | | | 2,190 | | Non-cash compensation expense | | 2,050 | | | 1,710 | |
| Paid-in-kind interest | Paid-in-kind interest | | 650 | | | 6,280 | | Paid-in-kind interest | | — | | | 650 | |
| | Loss on debt extinguishment of Replacement Term Loan | | Loss on debt extinguishment of Replacement Term Loan | | — | | | 11,650 | |
| Increase in receivables | Increase in receivables | | (12,360) | | | (35,170) | | Increase in receivables | | (23,090) | | | (30,630) | |
| (Increase) decrease in inventories | | (52,700) | | | 30,100 | | |
| Increase in inventories | | Increase in inventories | | (6,260) | | | (31,350) | |
| Increase in prepaid expenses and other assets | Increase in prepaid expenses and other assets | | (1,910) | | | (4,080) | | Increase in prepaid expenses and other assets | | (2,510) | | | (440) | |
| Increase in accounts payable and accrued liabilities | Increase in accounts payable and accrued liabilities | | 11,820 | | | 29,800 | | Increase in accounts payable and accrued liabilities | | 34,560 | | | 15,960 | |
| Other, net | Other, net | | 1,910 | | | (50) | | Other, net | | 5,450 | | | 1,780 | |
| Net cash (used for) provided by operating activities from continuing operations | | (30,640) | | | 24,190 | | |
| Net cash used for operating activities | | Net cash used for operating activities | | (24,420) | | | (27,620) | |
| Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | | | | Cash Flows from Investing Activities: | | | | |
| Capital expenditures | Capital expenditures | | (14,730) | | | (8,090) | | Capital expenditures | | (8,930) | | | (9,940) | |
| Other, net | Other, net | | 20 | | | 70 | | Other, net | | — | | | 10 | |
| Net cash used for investing activities from continuing operations | | (14,710) | | | (8,020) | | |
| Net cash used for investing activities | | Net cash used for investing activities | | (8,930) | | | (9,930) | |
| Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | | | | Cash Flows from Financing Activities: | | | | |
| Proceeds from borrowings on credit facilities | Proceeds from borrowings on credit facilities | | 2,870 | | | 6,440 | | Proceeds from borrowings on credit facilities | | 2,100 | | | 2,190 | |
| Repayments of borrowings on credit facilities | Repayments of borrowings on credit facilities | | (1,960) | | | (3,330) | | Repayments of borrowings on credit facilities | | (2,650) | | | (1,300) | |
| Proceeds from Senior Term Loan, net of issuance costs | Proceeds from Senior Term Loan, net of issuance costs | | 75,300 | | | — | | Proceeds from Senior Term Loan, net of issuance costs | | 118,200 | | | 75,300 | |
| Repayments of borrowings on Replacement Term Loan, including transaction fees | Repayments of borrowings on Replacement Term Loan, including transaction fees | | (94,940) | | | — | | Repayments of borrowings on Replacement Term Loan, including transaction fees | | — | | | (94,940) | |
| Proceeds from Revolving Credit Facility, net of issuance costs | Proceeds from Revolving Credit Facility, net of issuance costs | | 28,680 | | | 54,680 | | Proceeds from Revolving Credit Facility, net of issuance costs | | 15,800 | | | 20,000 | |
| Repayments of borrowings on Revolving Credit Facility | | (8,000) | | | (28,300) | | |
| Proceeds from ABL revolving debt, net of issuance costs | | — | | | 8,000 | | |
| Repayments of borrowings on ABL revolving debt | | — | | | (27,920) | | |
| Proceeds from Paycheck Protection Program Loan | | — | | | 8,670 | | |
| | Proceeds from issuance of common stock warrants | Proceeds from issuance of common stock warrants | | 16,300 | | | — | | Proceeds from issuance of common stock warrants | | 3,040 | | | 16,300 | |
| Proceeds from exercise of common stock warrants | Proceeds from exercise of common stock warrants | | 420 | | | — | | Proceeds from exercise of common stock warrants | | — | | | 420 | |
| Other, net | Other, net | | (650) | | | (320) | | Other, net | | (810) | | | (640) | |
| Net cash provided by financing activities from continuing operations | | 18,020 | | | 17,920 | | |
| Discontinued Operations: | | | | | |
| Net cash used for discontinued operations | | — | | | (500) | | |
| Net cash provided by financing activities | | Net cash provided by financing activities | | 135,680 | | | 17,330 | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (510) | | | 290 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (1,030) | | | (280) | |
| Cash, Cash Equivalents and Restricted Cash: | Cash, Cash Equivalents and Restricted Cash: | | Cash, Cash Equivalents and Restricted Cash: | | | | |
| (Decrease) increase for the period | | (27,840) | | | 33,880 | | |
| Increase (decrease) for the period | | Increase (decrease) for the period | | 101,300 | | | (20,500) | |
| At beginning of period | At beginning of period | | 50,690 | | | 11,770 | | At beginning of period | | 17,270 | | | 50,690 | |
| At end of period | At end of period | | $ | 22,850 | | | $ | 45,650 | | At end of period | | $ | 118,570 | | | $ | 30,190 | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | | | Supplemental disclosure of cash flow information: | | | | |
| Cash paid for interest | Cash paid for interest | | $ | 16,130 | | | $ | 4,990 | | Cash paid for interest | | $ | 10,590 | | | $ | 10,860 | |
| Cash paid for taxes, net of refunds | Cash paid for taxes, net of refunds | | $ | 2,010 | | | $ | 990 | | Cash paid for taxes, net of refunds | | $ | 860 | | | $ | 1,430 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited—dollars in thousands)
| | | Common Stock | | Common Stock Warrants | | Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) | | Total Horizon Global Shareholders' Equity (Deficit) | | Noncontrolling Interest | | Total Shareholders' Equity (Deficit) | | Common Stock | | Common Stock Warrants | | Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) Income | | Total Horizon Global Shareholders' Equity (Deficit) | | Noncontrolling Interest | | Total Shareholders' Equity (Deficit) |
| Balances at January 1, 2021 | | $ | 260 | | | $ | 9,510 | | | $ | 166,610 | | | $ | (10,000) | | | $ | (178,530) | | | $ | (6,540) | | | $ | (18,690) | | | $ | (5,160) | | | $ | (23,850) | | |
| Balances at January 1, 2022 | | Balances at January 1, 2022 | | $ | 270 | | | $ | 25,010 | | | $ | 170,990 | | | $ | (10,000) | | | $ | (210,250) | | | $ | (9,710) | | | $ | (33,690) | | | $ | (6,560) | | | $ | (40,250) | |
| Net loss | | Net loss | | — | | | — | | | — | | | — | | | (26,680) | | | — | | | (26,680) | | | (270) | | | (26,950) | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | — | | | 4,990 | | | 4,990 | | | — | | | 4,990 | |
| Shares surrendered upon vesting of employee stock compensation awards to cover tax obligations | | Shares surrendered upon vesting of employee stock compensation awards to cover tax obligations | | — | | | — | | | (640) | | | — | | | — | | | — | | | (640) | | | — | | | (640) | |
| Non-cash compensation expense | | Non-cash compensation expense | | 10 | | | — | | | 1,250 | | | — | | | — | | | — | | | 1,260 | | | — | | | 1,260 | |
| Issuance of common stock warrants | | Issuance of common stock warrants | | — | | | 3,040 | | | — | | | — | | | — | | | — | | | 3,040 | | | — | | | 3,040 | |
| Amounts reclassified from AOCI | | Amounts reclassified from AOCI | | — | | | — | | | — | | | — | | | — | | | (3,100) | | | (3,100) | | | — | | | (3,100) | |
| Balances at March 31, 2022 | | Balances at March 31, 2022 | | 280 | | | 28,050 | | | 171,600 | | | (10,000) | | | (236,930) | | | (7,820) | | | (54,820) | | | (6,830) | | | (61,650) | |
| Net loss | Net loss | | — | | | — | | | — | | | — | | | (14,810) | | | — | | | (14,810) | | | (340) | | | (15,150) | | Net loss | | — | | | — | | | — | | | — | | | (22,200) | | | — | | | (22,200) | | | (230) | | | (22,430) | |
| Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (2,290) | | | (2,290) | | | — | | | (2,290) | | Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (2,280) | | | (2,280) | | | — | | | (2,280) | |
| Shares surrendered upon vesting of employees share based payment awards to cover tax obligations | | — | | | — | | | (650) | | | — | | | — | | | — | | | (650) | | | — | | | (650) | | |
| Non-cash compensation expense | Non-cash compensation expense | | — | | | — | | | 960 | | | — | | | — | | | — | | | 960 | | | — | | | 960 | | Non-cash compensation expense | | — | | | — | | | 800 | | | — | | | — | | | — | | | 800 | | | — | | | 800 | |
| Issuance of common stock warrants | | — | | | 16,300 | | | — | | | — | | | — | | | — | | | 16,300 | | | — | | | 16,300 | | |
| Exercise of common stock warrants | | 10 | | | (800) | | | 1,210 | | | — | | | — | | | — | | | 420 | | | — | | | 420 | | |
| Balances at March 31, 2021 | | 270 | | | 25,010 | | | 168,130 | | | (10,000) | | | (193,340) | | | (8,830) | | | (18,760) | | | (5,500) | | | (24,260) | | |
| Net income (loss) | | — | | | — | | | — | | | — | | | 1,290 | | | — | | | 1,290 | | | (330) | | | 960 | | |
| Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (130) | | | (130) | | | — | | | (130) | | |
| Shares surrendered upon vesting of employees share based payment awards to cover tax obligations | | — | | | — | | | 10 | | | — | | | — | | | — | | | 10 | | | — | | | 10 | | |
| Non-cash compensation expense | | — | | | — | | | 930 | | | — | | | — | | | — | | | 930 | | | — | | | 930 | | |
| Balances at June 30, 2021 | | 270 | | | 25,010 | | | 169,070 | | | (10,000) | | | (192,050) | | | (8,960) | | | (16,660) | | | (5,830) | | | (22,490) | | |
| Net loss | | — | | | — | | | — | | | — | | | (2,470) | | | — | | | (2,470) | | | (300) | | | (2,770) | | |
| Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (1,650) | | | (1,650) | | | — | | | (1,650) | | |
| Shares surrendered upon vesting of employees share based payment awards to cover tax obligations | | — | | | — | | | (10) | | | — | | | — | | | — | | | (10) | | | — | | | (10) | | |
| Non-cash compensation expense | | — | | | — | | | 990 | | | — | | | — | | | — | | | 990 | | | — | | | 990 | | |
| Balances at September 30, 2021 | | $ | 270 | | | $ | 25,010 | | | $ | 170,050 | | | $ | (10,000) | | | $ | (194,520) | | | $ | (10,610) | | | $ | (19,800) | | | $ | (6,130) | | | $ | (25,930) | | |
| Balances at June 30, 2022 | | Balances at June 30, 2022 | | $ | 280 | | | $ | 28,050 | | | $ | 172,400 | | | $ | (10,000) | | | $ | (259,130) | | | $ | (10,100) | | | $ | (78,500) | | | $ | (7,060) | | | $ | (85,560) | |
|
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| | Common Stock | | Common Stock Warrants | | Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss) Income | | Total Horizon Global Shareholders' Equity (Deficit) | | Noncontrolling Interest | | Total Shareholders' Equity (Deficit) |
| Balances at January 1, 2020 | | $ | 250 | | | $ | 10,610 | | | $ | 163,240 | | | $ | (10,000) | | | $ | (141,970) | | | $ | (9,790) | | | $ | 12,340 | | | $ | (3,740) | | | $ | 8,600 | |
| Net loss | | — | | | — | | | — | | | — | | | (16,740) | | | — | | | (16,740) | | | (290) | | | (17,030) | |
| Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (4,340) | | | (4,340) | | | — | | | (4,340) | |
| Shares surrendered upon vesting of employees share based payment awards to cover tax obligations | | — | | | — | | | (60) | | | — | | | — | | | — | | | (60) | | | — | | | (60) | |
| Non-cash compensation expense | | — | | | — | | | 420 | | | — | | | — | | | — | | | 420 | | | — | | | 420 | |
| Balances at March 31, 2020 | | 250 | | | 10,610 | | | 163,600 | | | (10,000) | | | (158,710) | | | (14,130) | | | (8,380) | | | (4,030) | | | (12,410) | |
| Net loss | | — | | | — | | | — | | | — | | | (16,340) | | | — | | | (16,340) | | | (380) | | | (16,720) | |
| Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | — | | | 2,040 | | | 2,040 | | | — | | | 2,040 | |
| Shares surrendered upon vesting of employees share based payment awards to cover tax obligations | | — | | | — | | | 50 | | | — | | | — | | | — | | | 50 | | | — | | | 50 | |
| Non-cash compensation expense | | — | | | — | | | 900 | | | — | | | — | | | — | | | 900 | | | — | | | 900 | |
| Balances at June 30, 2020 | | 250 | | | 10,610 | | | 164,550 | | | (10,000) | | | (175,050) | | | (12,090) | | | (21,730) | | | (4,410) | | | (26,140) | |
| Net income (loss) | | — | | | — | | | — | | | — | | | 1,930 | | | — | | | 1,930 | | | (340) | | | 1,590 | |
| Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | — | | | 1,900 | | | 1,900 | | | — | | | 1,900 | |
| Shares surrendered upon vesting of employees share based payment awards to cover tax obligations | | — | | | — | | | (310) | | | — | | | | | | | (310) | | | — | | | (310) | |
| Non-cash compensation expense | | — | | | — | | | 870 | | | — | | | — | | | — | | | 870 | | | — | | | 870 | |
| Exercise of common stock warrants | | 10 | | | (810) | | | 800 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balances at September 30, 2020 | | $ | 260 | | | $ | 9,800 | | | $ | 165,910 | | | $ | (10,000) | | | $ | (173,120) | | | $ | (10,190) | | | $ | (17,340) | | | $ | (4,750) | | | $ | (22,090) | |
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| | Common Stock | | Common Stock Warrants | | Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Horizon Global Shareholders' Equity (Deficit) | | Noncontrolling Interest | | Total Shareholders' Equity (Deficit) |
| Balances at January 1, 2021 | | $ | 260 | | | $ | 9,510 | | | $ | 166,610 | | | $ | (10,000) | | | $ | (178,530) | | | $ | (6,540) | | | $ | (18,690) | | | $ | (5,160) | | | $ | (23,850) | |
| Net loss | | — | | | — | | | — | | | — | | | (14,810) | | | — | | | (14,810) | | | (340) | | | (15,150) | |
| Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (2,290) | | | (2,290) | | | — | | | (2,290) | |
| Shares surrendered upon vesting of employee stock compensation awards to cover tax obligations | | — | | | — | | | (650) | | | — | | | — | | | — | | | (650) | | | — | | | (650) | |
| Non-cash compensation expense | | — | | | — | | | 960 | | | — | | | — | | | — | | | 960 | | | — | | | 960 | |
| Issuance of common stock warrants | | — | | | 16,300 | | | — | | | — | | | — | | | — | | | 16,300 | | | — | | | 16,300 | |
| Exercise of common stock warrants | | 10 | | | (800) | | | 1,210 | | | — | | | — | | | — | | | 420 | | | — | | | 420 | |
| Balances at March 31, 2021 | | 270 | | | 25,010 | | | 168,130 | | | (10,000) | | | (193,340) | | | (8,830) | | | (18,760) | | | (5,500) | | | (24,260) | |
| Net income (loss) | | — | | | — | | | — | | | — | | | 1,290 | | | — | | | 1,290 | | | (330) | | | 960 | |
| Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (130) | | | (130) | | | — | | | (130) | |
| Shares surrendered upon vesting of employee stock compensation awards to cover tax obligations | | — | | | — | | | 10 | | | — | | | �� | | | — | | | 10 | | | — | | | 10 | |
| Non-cash compensation expense | | — | | | — | | | 930 | | | — | | | — | | | — | | | 930 | | | — | | | 930 | |
| Balances at June 30, 2021 | | $ | 270 | | | $ | 25,010 | | | $ | 169,070 | | | $ | (10,000) | | | $ | (192,050) | | | $ | (8,960) | | | $ | (16,660) | | | $ | (5,830) | | | $ | (22,490) | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Basis of Presentation
Horizon Global Corporation and its consolidated subsidiaries (“Horizon” “Horizon Global,” “we,” “our”,“our,” or the “Company”) are a leading designer, manufacturer and distributor of a wide variety of high quality, custom-engineered towing, trailering, cargo management and other related accessory products primarily in the North American, European and African markets. These products are designed to support aftermarket, automotive original equipment manufacturers (“automotive OEMs”) and automotive original equipment servicers (“automotive OESs”) (collectively, “OEs”), retail, e-commerce and industrial customers within the agricultural, automotive, construction, horse/livestock, industrial, marine, military, recreational, trailer and utility markets. The Company groups its business into operating segments generally by the region in which sales and manufacturing efforts are focused. The Company’s operating segments are Horizon Americas and Horizon Europe-Africa. See Note 14,13, Segment Information, for further information on the Company’s operating segments.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2020.2021. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. It is management’s opinion that these condensed consolidated financial statements contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Results of operations for interim periods are not necessarily indicative of results for the full year.
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make certain estimates, judgments, and assumptions. Managementassumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates, judgments, and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. The Company believes that the estimates, judgments and assumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, sales incentives, sales returns, impairment assessment of indefinite-lived intangible assets, recoverability of long-lived assets, income taxes (including deferred taxes and uncertain tax positions), share-basedstock compensation, the assessment of lower of cost or net realizable value on inventory, useful lives assigned to long-lived assets, and depreciation and amortization, estimates related to lease liability and operating lease right-of-use (“ROU”) asset valuations, estimated future unrecoverable lease costs, legal and product liability matters, valuation of debt instruments and warrants, assets and obligations related to employee benefits, and the respective allocation methods, are reasonable based on information available at the time they are made. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.
Discussion of Going Concern
The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has a history of recurring net operating losses and cash outflows from operations. As of June 30, 2022, the Company was in compliance with all applicable covenants in agreements governing its debt. However, based on the Company’s projected financial performance for the twelve-month period subsequent to the date of the filing of this Quarterly Report on Form 10-Q, the Company projects that it will not be in compliance with a financial covenant under the Company’s Senior Term Loan Credit Agreement, as defined in Note 7, Long-term Debt, as of March 31, 2023, which would result in an event of default. Such a default would allow the lender under the Senior Term Loan Credit Agreement to accelerate the maturity of the debt, which carries a balance of $225.0 million as of June 30, 2022, making it due and payable at that time. This would, in turn, result in cross-default of the Company’s Revolving Credit Facility, as defined in Note 7, Long-term Debt, which carries a balance of $73.9 million as of June 30, 2022. The Company does not have sufficient cash on hand or available liquidity that can be utilized to repay these outstanding amounts in the event of default.
In response to the potential covenant breach, the Company is in discussions with its lender to amend the terms of its financial covenant under the Senior Term Loan Credit Agreement. The Company has a history of successfully amending and extending credit agreements with its current lenders and believes it is probable such amendment will be completed. We believe that these actions will allow the Company to continue as a going concern and remain in compliance with our financial covenants for the twelve months from the issuance of these condensed consolidated financial statements.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. New Accounting Pronouncements
NewAs of June 30, 2022, there have been no new accounting pronouncements not yetrecently issued or adopted
In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2021-04”). ASU 2021-04 provides guidance on modifications that have had or exchanges ofare reasonably likely to have a freestanding equity-classified written call option that is not within the scope of other accounting standards. Under this guidance, an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. ASU 2021-04 provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. ASU 2021-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2021, with early adoption permitted. We are currently assessing thematerial impact of this update on the Company’s condensed consolidated financial statements. The standard is not expected to have a significant impact on the Company's condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in Accounting Standards Codification (“ASC”) 470-20, “Debt—Debt with Conversion and Other Options,” (“ASC 470-20”) for convertible instruments. Under ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC 815, “Derivatives and Hedging,” or that do not result in substantial premiums accounted for as paid-in capital. For smaller reporting companies, ASU 2020-06 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2023, with early adoption permitted for fiscal years beginning after December 15, 2020. We are currently assessing the impact of this update on the Company’s condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting for (or recognize the effects of) reference rate reform on financial reporting. The relief provided by this guidance is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform initiatives being undertaken in an effort to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The optional amendments of this guidance are effective for all entities upon adoption. We are currently assessing the impact of this update on the Company’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss model guidance with a new method that reflects expected credit losses. Under this guidance, an entity would recognize an allowance for credit losses equal to its estimate of expected credit losses on financial assets measured at amortized cost. In November 2019, the FASB extended the effective date of ASU 2016-13 for smaller reporting companies. As a result, ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2022, with early adoption permitted. The standard is not expected to have a significant impact on the Company's condensed consolidated financial statements.
Accounting pronouncements recently adopted
There were no new accounting pronouncements adopted during the nine months ended September 30, 2021.
3. RevenuesInventories
The Company disaggregatesInventories consist of the following components:
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| | | (dollars in thousands) |
| Finished goods | | $ | 91,040 | | | $ | 85,770 | |
| Work in process | | 14,470 | | | 15,570 | |
| Raw materials | | 59,520 | | | 61,490 | |
| Total | | $ | 165,030 | | | $ | 162,830 | |
4. Property and Equipment, Net
Property and equipment, net sales from contracts with customers by major sales channel. The Company determined that disaggregating its net sales into these categories best depicts howconsists of the nature, amount, timing,following components:
| | | | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 | | |
| | | (dollars in thousands) | | |
| Land and land improvements | | $ | 440 | | | $ | 480 | | | |
| Buildings and building improvements | | 20,880 | | | 22,210 | | | |
| Machinery and equipment | | 137,520 | | | 135,110 | | | |
| Gross property and equipment | | 158,840 | | | 157,800 | | | |
| Accumulated depreciation | | (89,180) | | | (86,190) | | | |
| Total | | $ | 69,660 | | | $ | 71,610 | | | |
During the three months ended June 30, 2022 and uncertainty2021, depreciation expense was $3.4 million and $3.6 million, respectively. During the six months ended June 30, 2022 and 2021, depreciation expense was $6.8 million and $7.8 million, respectively.
5. Other Intangible Assets
Gross carrying amounts and accumulated amortization of revenue and cash flowsother intangible assets are affected by economic factors. The automotive OEM channel represents sales to automotive vehicle manufacturers. The automotive OES channel primarily represents sales to automotive vehicle dealerships. The aftermarket channel represents sales to automotive installers and warehouse distributors. The retail channel represents sales to direct-to-consumer retailers. The e-commerce channel represents sales to retailers whose customers utilize the Internet to purchase the Company’s products. The industrial channel represents sales to non-automotive manufacturers and dealers of agricultural equipment, trailers, and other custom assemblies. The other channel represents sales that do not fit into a category described above and these sales are considered ancillary to the Company’s core operating activities.as follows:
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| | June 30, 2022 |
| Intangible Category by Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (dollars in thousands) |
| Finite-lived intangible assets: | | | | | | |
| Customer relationships (2 – 20 years) | | $ | 159,700 | | | $ | (137,990) | | | $ | 21,710 | |
| Technology and other (3 – 15 years) | | 23,520 | | | (21,080) | | | 2,440 | |
| Sub-total | | 183,220 | | | (159,070) | | | 24,150 | |
| Trademark/Trade names, indefinite-lived | | 20,160 | | | — | | | 20,160 | |
| Total | | $ | 203,380 | | | $ | (159,070) | | | $ | 44,310 | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s net sales by segment and disaggregated by major sales channel are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 |
| | Horizon Americas | | Horizon Europe-Africa | | Total |
| | (dollars in thousands) |
| Net Sales | | | | | | |
| Aftermarket | | $ | 35,390 | | | $ | 22,400 | | | $ | 57,790 | |
| Automotive OEM | | 24,690 | | | 34,590 | | | 59,280 | |
| Automotive OES | | 3,570 | | | 20,790 | | | 24,360 | |
| Retail | | 26,460 | | | — | | | 26,460 | |
| E-commerce | | 16,970 | | | 1,950 | | | 18,920 | |
| Industrial | | 8,770 | | | 480 | | | 9,250 | |
| Other | | — | | | 480 | | | 480 | |
| Total | | $ | 115,850 | | | $ | 80,690 | | | $ | 196,540 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 |
| | Horizon Americas | | Horizon Europe-Africa | | Total |
| | (dollars in thousands) |
| Net Sales | | | | | | |
| Aftermarket | | $ | 35,390 | | | $ | 24,360 | | | $ | 59,750 | |
| Automotive OEM | | 24,010 | | | 42,400 | | | 66,410 | |
| Automotive OES | | 2,980 | | | 13,820 | | | 16,800 | |
| Retail | | 34,290 | | | — | | | 34,290 | |
| E-commerce | | 15,240 | | | 630 | | | 15,870 | |
| Industrial | | 7,230 | | | 550 | | | 7,780 | |
| Other | | — | | | 730 | | | 730 | |
| Total | | $ | 119,140 | | | $ | 82,490 | | | $ | 201,630 | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
| | Horizon Americas | | Horizon Europe-Africa | | Total |
| | (dollars in thousands) |
| Net Sales | | | | | | |
| Aftermarket | | $ | 107,640 | | | $ | 70,950 | | | $ | 178,590 | |
| Automotive OEM | | 74,860 | | | 127,340 | | | 202,200 | |
| Automotive OES | | 11,670 | | | 56,820 | | | 68,490 | |
| Retail | | 81,650 | | | — | | | 81,650 | |
| E-commerce | | 51,220 | | | 5,340 | | | 56,560 | |
| Industrial | | 27,020 | | | 1,660 | | | 28,680 | |
| Other | | — | | | 1,680 | | | 1,680 | |
| Total | | $ | 354,060 | | | $ | 263,790 | | | $ | 617,850 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| Intangible Category by Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (dollars in thousands) |
| Finite-lived intangible assets: | | | | | | |
| Customer relationships (2 – 20 years) | | $ | 162,390 | | | $ | (137,420) | | | $ | 24,970 | |
| Technology and other (3 – 15 years) | | 23,870 | | | (20,830) | | | 3,040 | |
| Sub-total | | 186,260 | | | (158,250) | | | 28,010 | |
| Trademark/Trade names, indefinite-lived | | 20,900 | | | — | | | 20,900 | |
| Total | | $ | 207,160 | | | $ | (158,250) | | | $ | 48,910 | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 |
| | Horizon Americas | | Horizon
Europe-Africa | | Total |
| | (dollars in thousands) |
| Net Sales | | | | | | |
| Aftermarket | | $ | 84,440 | | | $ | 56,750 | | | $ | 141,190 | |
| Automotive OEM | | 53,880 | | | 104,420 | | | 158,300 | |
| Automotive OES | | 5,330 | | | 34,000 | | | 39,330 | |
| Retail | | 80,690 | | | — | | | 80,690 | |
| E-commerce | | 41,120 | | | 1,290 | | | 42,410 | |
| Industrial | | 20,120 | | | 1,210 | | | 21,330 | |
| Other | | 50 | | | 2,070 | | | 2,120 | |
| Total | | $ | 285,630 | | | $ | 199,740 | | | $ | 485,370 | |
4. GoodwillDuring the three months ended June 30, 2022 and Other Intangible Assets
Changes in the carrying amount of goodwill are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Horizon Americas | | Horizon Europe-Africa | | Total |
| | (dollars in thousands) |
| Balance at January 1, 2021 | | $ | 3,360 | | | $ | — | | | $ | 3,360 | |
| Divestiture of business | | (3,340) | | | — | | | (3,340) | |
| Foreign currency translation | | (20) | | | — | | | (20) | |
| Balance at September 30, 2021 | | $ | — | | | $ | — | | | $ | — | |
Brazil Sale
On June 8, 2021, the Company divested its Brazil business via a share sale (the “Brazil Sale”). Under the terms of the Brazil Sale, the Company disposed all assets and liabilities of its Brazil business, including $3.3 million of goodwill within the Horizon Americas operating segment, for nominal consideration. As a result of the Brazil Sale, the Company recorded a $2.2 million loss during the second quarter of 2021 in other expense, net in the accompanying condensed consolidated statements of operations.
The gross carrying amounts and accumulated amortization of the Company’s other intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
| Intangible Category by Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (dollars in thousands) |
| Finite-lived intangible assets: | | | | | | |
| Customer relationships (2 – 20 years) | | $ | 162,970 | | | $ | (136,640) | | | $ | 26,330 | |
| Technology and other (3 – 15 years) | | 22,760 | | | (17,280) | | | 5,480 | |
| Sub-total | | 185,730 | | | (153,920) | | | 31,810 | |
| Trademark/Trade names, indefinite-lived | | 21,060 | | | — | | | 21,060 | |
| Total | | $ | 206,790 | | | $ | (153,920) | | | $ | 52,870 | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| Intangible Category by Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (dollars in thousands) |
| Finite-lived intangible assets: | | | | | | |
| Customer relationships (2 – 20 years) | | $ | 166,420 | | | $ | (135,140) | | | $ | 31,280 | |
| Technology and other (3 – 15 years) | | 22,250 | | | (16,710) | | | 5,540 | |
| Trademark/Trade names (1 – 8 years) | | 150 | | | (150) | | | — | |
| Sub-total | | 188,820 | | | (152,000) | | | 36,820 | |
| Trademark/Trade names, indefinite-lived | | 21,410 | | | — | | | 21,410 | |
| Total | | $ | 210,230 | | | $ | (152,000) | | | $ | 58,230 | |
Amortization expense related to other intangible assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended
September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (dollars in thousands) |
| Technology and other, included in cost of sales | | $ | 210 | | | $ | 280 | | | $ | 990 | | | $ | 950 | |
| Customer relationships, included in selling, general and administrative expenses | | 1,040 | | | 1,330 | | | 3,230 | | | 4,090 | |
| Total | | $ | 1,250 | | | $ | 1,610 | | | $ | 4,220 | | | $ | 5,040 | |
5. Inventories6. Accrued and Other Long-term Liabilities
InventoriesAccrued liabilities consist of the following components:
| | | | | | | | | | | | | | |
| | | September 30,
2021 | | December 31,
2020 |
| | | (dollars in thousands) |
| Finished goods | | $ | 89,640 | | | $ | 58,600 | |
| Work in process | | 15,870 | | | 13,070 | |
| Raw materials | | 58,760 | | | 43,650 | |
| Total | | $ | 164,270 | | | $ | 115,320 | |
| | | | | | | | | | | | | | |
| | June 30,
2022 | | December 31,
2021 |
| | (dollars in thousands) |
| Customer incentives | | $ | 14,050 | | | $ | 13,030 | |
| Accrued compensation | | 9,370 | | | 7,520 | |
| Accrued transportation costs | | 7,030 | | | 5,600 | |
| Short-term tax liabilities | | 3,320 | | | 3,530 | |
| Accrued interest | | 2,900 | | | 3,430 | |
| Customer claims | | 2,830 | | | 2,900 | |
| Litigation settlements | | 1,050 | | | 1,290 | |
| Accrued professional services | | 860 | | | 1,700 | |
| Other | | 5,970 | | | 5,870 | |
| Total | | $ | 47,380 | | | $ | 44,870 | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Property and Equipment, Net
Property and equipment, net consistsOther long-term liabilities consist of the following components:
| | | | | | | | | | | | | | |
| | | September 30,
2021 | | December 31,
2020 |
| | | (dollars in thousands) |
| Land and land improvements | | $ | 490 | | | $ | 520 | |
| Buildings and improvements | | 22,760 | | | 23,040 | |
| Machinery and equipment | | 142,390 | | | 134,750 | |
| Gross property and equipment | | 165,640 | | | 158,310 | |
| Accumulated depreciation | | (92,700) | | | (84,220) | |
| Total | | $ | 72,940 | | | $ | 74,090 | |
Depreciation expense is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended
September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (dollars in thousands) |
| Depreciation expense, included in cost of sales | | $ | 3,720 | | | $ | 3,920 | | | $ | 10,850 | | | $ | 10,330 | |
| Depreciation expense, included in selling, general and administrative expenses | | 240 | | | 90 | | | 860 | | | 780 | |
| Total | | $ | 3,960 | | | $ | 4,010 | | | $ | 11,710 | | | $ | 11,110 | |
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| | | (dollars in thousands) |
| Litigation settlements | | $ | 1,260 | | | $ | 1,820 | |
| Long-term tax liabilities | | 130 | | | 130 | |
| Other | | 6,510 | | | 6,970 | |
| Total | | $ | 7,900 | | | $ | 8,920 | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Accrued and Other Long-term Liabilities
Accrued liabilities consist of the following components:
| | | | | | | | | | | | | | |
| | September 30,
2021 | | December 31,
2020 |
| | (dollars in thousands) |
| Customer incentives | | $ | 14,730 | | | $ | 15,870 | |
| Accrued compensation | | 11,020 | | | 12,130 | |
| Short-term tax liabilities | | 4,920 | | | 5,570 | |
| Customer claims | | 3,830 | | | 6,520 | |
| Accrued professional services | | 1,760 | | | 1,510 | |
| Litigation settlements | | 1,150 | | | 1,600 | |
| Restructuring | | 120 | | | 650 | |
| Deferred purchase price | | — | | | 1,370 | |
| Other | | 15,810 | | | 13,880 | |
| Total | | $ | 53,340 | | | $ | 59,100 | |
Other long-term liabilities consist of the following components:
| | | | | | | | | | | | | | |
| | | September 30,
2021 | | December 31,
2020 |
| | | (dollars in thousands) |
| Litigation settlements | | $ | 2,320 | | | $ | 2,930 | |
| Long-term tax liabilities | | 330 | | | 130 | |
| Deferred purchase price | | — | | | 1,650 | |
| Restructuring | | — | | | 1,070 | |
| Other | | 7,980 | | | 8,780 | |
| Total | | $ | 10,630 | | | $ | 14,560 | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Long-term Debt
The Company’s long-termLong-term debt consists of the following components:
| | | | | | | | | | | | | | |
| | | September 30,
2021 | | December 31,
2020 |
| | | (dollars in thousands) |
| Revolving Credit Facility | | $ | 44,910 | | | $ | 24,230 | |
| Senior Term Loan | | 100,000 | | | — | |
| Replacement Term Loan | | — | | | 90,210 | |
| Convertible Notes | | 125,000 | | | 125,000 | |
| Paycheck Protection Program Loan | | 8,670 | | | 8,670 | |
| Bank facilities, capital leases and other long-term debt | | 17,700 | | | 17,970 | |
| Gross debt | | 296,280 | | | 266,080 | |
| Less: | | | | |
| Short-term borrowings and current maturities, long-term debt | | 5,940 | | | 14,120 | |
| Gross long-term debt | | 290,340 | | | 251,960 | |
| Unamortized debt issuance costs and discount: | | | | |
| Unamortized debt issuance costs and original issuance discount on Senior Term Loan | | (22,870) | | | — | |
| Unamortized debt issuance costs and original issuance discount on Replacement Term Loan | | — | | | (9,100) | |
| Unamortized debt issuance costs and discount on Convertible Notes | | (6,130) | | | (11,470) | |
| Total | | (29,000) | | | (20,570) | |
| Long-term debt | | $ | 261,340 | | | $ | 231,390 | |
ABL Facility
In December 2015, the Company entered into an Amended and Restated Loan Agreement with certain subsidiaries of the Company party thereto as guarantors, the lenders party thereto and Bank of America, N.A., as agent for the lenders, under which the lenders party thereto agreed to provide the Company and certain of its subsidiaries with a committed asset-based revolving credit facility (the “ABL Facility”) providing for revolving loans. The Amended and Restated Loan Agreement was subsequently amended on several occasions and as a result, the effective facility size was $80.0 million.
In March 2020, the Company paid in full all outstanding debt incurred under the ABL Facility, which the Company accounted for as a debt extinguishment in accordance with guidance in ASC 405-20, “Extinguishment of Liabilities”. As a result of the debt extinguishment,during the nine months ended September 30, 2020, the Company recognized $0.8 million of unamortized debt issuance costs in interest expense and $0.6 million of additional costs in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations, in accordance with ASC 470-50, “Modifications and Extinguishments” (“ASC 470-50”).
During the three and nine months ended September 30, 2021, the Company recognized no amortization of debt issuance costs and during the three and nine months ended September 30, 2020, the Company recognized no amortization of debt issuance costs and $0.4 million amortization of debt issuance costs, respectively, in the accompanying condensed consolidated statements of operations. | | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| | | (dollars in thousands) |
| Revolving Credit Facility | | $ | 73,850 | | | $ | 58,050 | |
| Senior Term Loan | | 225,000 | | | 100,000 | |
| Convertible Notes | | 85,000 | | | 125,000 | |
| | | | |
| Bank facilities, finance leases and other long-term debt | | 15,860 | | | 17,800 | |
| Gross debt | | 399,710 | | | 300,850 | |
| Less: | | | | |
| Short-term borrowings and current maturities, long-term debt | | 4,440 | | | 3,780 | |
| Gross long-term debt | | 395,270 | | | 297,070 | |
| Unamortized debt issuance costs and discount: | | | | |
| Unamortized debt issuance costs and original issuance discount on Senior Term Loan | | (27,130) | | | (22,170) | |
| Unamortized debt issuance costs and discount on Convertible Notes | | (500) | | | (4,350) | |
| Total | | (27,630) | | | (26,520) | |
| Long-term debt | | $ | 367,640 | | | $ | 270,550 | |
Revolving Credit Facility
In March 2020, the Company, as guarantor, entered into a Loan and Security Agreement (the “Loan Agreement”) with Eclipse Business Capital LLC, formerly known as Encina Business Credit, LLC, (“Encina”), as agent for the lenders party thereto, and Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers (the “ABL Borrowers”).
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Loan Agreement provides for an asset-based revolving credit facility (the “Revolving Credit Facility”) in the maximum aggregate principal amount of $75.0 million subject to customary borrowing base limitations contained therein, and may be increased at the ABL Borrowers’ request in increments of $5.0 million, up to a maximum of five times over the life of the Revolving Credit Facility, for a total increase of up to $25.0 million.
In May 2020, the Company entered into amendments, limited waivers and consents in connection with the The Loan Agreement with an effective date of April 1, 2020,has been amended on several occasions that, among other things, consentedincreased the maximum credit available under the Revolving Credit Facility to the Company’s applying for, obtaining and incurring the PPP Loan, as defined and described below.
In February 2021, the Company entered into a limited consent of$95.0 million. All outstanding borrowings on the Loan Agreement that among other modifications, consented to the Company’s entering into the Senior Term Loan Credit Agreement, as defined and described below.mature on March 13, 2024.
In April 2021,Effective March 31, 2022, the Company entered into an amendment to the Loan Agreement that among other modifications,temporarily increased the maximum amount of credit available under the Revolving Credit Facility to $85.0 million. The amendment also increased sub-limits relating to the Company’s ability to borrow against receivables and in-transit inventory as well as inventory located in the Company’s Mexico facilities.
facilities, which was initially effective through June 30, 2022. On September 17, 2021, the Company entered into an amendment toJune 30, 2022, the Loan Agreement that among other modifications, increasedwas amended to extend the maximum amounteffective date of credit available under the Revolving Credit Facility to $95.0 million. temporary borrowing capacity through September 30, 2022. The March 31, 2022 amendment also increasedreplaced the Company’s ability to borrow against receivables and sub-limits relating to in-transit inventory and inventory located inLondon Interbank Offered Rate (“LIBOR”) based interest rate with the Company’s Mexico facilities. The increased borrowing capacity against receivables and inventory is effective through December 31, 2021Adjusted Term Secured Overnight Financing Rate (“SOFR”).
Interest As a result of the amendment, interest on the loans under the Loan Agreement is payable in cash at the interest rate of LIBORSOFR plus 4.00% per annum, subject to a 1.00% LIBOR floor, provided that if for any reasonSOFR floor. Beginning September 30, 2022, the loans are converted to baseinterest rate loans, interest will be paid in cash at the customary base rate plus a margin of 3.00% per annum. All interest, fees, and other monetary obligations due may, at Encina’s discretion, but upon prior notice to the ABL Borrowers, be charged to the loan account and thereafter be deemed to be part of the Revolving Credit Facility subject to the same interest rate. There are no amortization payments required under the Loan Agreement. All outstanding borrowings under the Loan Agreement mature on March 13, 2023.
All of the indebtedness under the Loan Agreement is and will be guaranteed by the Company and certain of the Company’s existing and future North American subsidiaries and is and will be secured by substantially all of the assets of the Company, such other guarantors, and the ABL Borrowers.
The Loan Agreement also contains a financial covenant that stipulates the ABL Borrowers and guarantorsloans under the Loan Agreement will not make capital expenditures exceeding $30.0 million during any fiscal year.
Debt issuance costs of $2.3 million were incurredbe SOFR plus 3.50% to 4.00% per annum, subject to a 1.00% SOFR floor and certain conditions defined in connection with the Loan Agreement. These debt issuance costs will be amortized into interest expense over the contractual term of the Loan Agreement.
During the three and ninesix months ended SeptemberJune 30, 2021,2022, the Company recognized $0.1 million and $0.4$0.2 million of amortization of debt issuance costs, respectively, and during the three and ninesix months ended SeptemberJune 30, 2020,2021, the Company recognized $0.2$0.1 million and $0.9$0.3 million of amortization of debt issuance costs, respectively, in interest expense in the accompanying condensed consolidated statements of operations.
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, there was $1.0$0.6 million and $1.1$0.8 million, respectively, of unamortized debt issuance costs, respectively, included in other assets in the accompanying condensed consolidated balance sheets.
As of SeptemberJune 30, 20212022 and December 31, 2020, there was $44.9 million and $24.2 million outstanding, respectively, under the Revolving Credit Facility, with a weighted average interest rate of 5.3% and 5.0%, respectively. As of September 30, 2021, and December 31, 2020, the Company had $37.5$20.1 million and $38.4$27.4 million of availability, respectively, under the Revolving Credit Facility.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had $2.1$0.8 million and $3.1$2.1 million respectively, of letters of credit issued and outstanding, respectively, under the Revolving Credit Facility with no cash collateral requirement. As of SeptemberJune 30, 20212022 and December 31, 2020, respectively,2021, the Company also had $4.2$4.1 million and $4.9$4.2 million of other letters of credit issued and outstanding, respectively, under the Revolving Credit Facility with a cash collateral requirement. The cash collateral requirement is 105% of the outstanding letters of credit. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had cash collateral of $4.9 million and $5.1 million, respectively.million. Cash collateral is presentedincluded in restricted cash in the accompanying condensed consolidated balance sheets.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
First Lien Term Loan Agreement
In June 2015, the Company entered into a credit agreement among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A. (the “Term Loan Agreement”) under which the Company borrowed an aggregate of $200.0 million (the “Original Term B Loan”). The Term Loan Agreement was subsequently amended and restated on several occasions and is collectively referred to as the “First Lien Term Loan Agreement”. The Original Term B Loan was also subsequently amended on several occasions and is collectively referred to as the “First Lien Term Loan”.
In May 2020, the Company entered into an amendment, limited waiver and consent to credit agreement with an effective date of April 1, 2020, to amend the First Lien Term Loan Agreement and to consent to the Company’s entering into, among other things, the PPP Loan, as defined and described below.
As a result of the Replacement Term Loan Amendment, as defined and described below, the outstanding balance and any accrued interest was replaced by the Replacement Term Loan, as defined and described below.
During the three and nine months ended September 30, 2021, the Company recognized no amortization of debt issuance costs and during the three and nine months ended September 30, 2020, the Company recognized no and $0.2 million amortization of debt issuance costs, respectively, in the accompanying condensed consolidated statements of operations.
During the three and nine months ended September 30, 2021, the Company recognized no paid-in-kind (“PIK”) interest and during the three and nine months ended September 30, 2020, the Company recognized no and $0.4 million of PIK interest, respectively, in the accompanying condensed consolidated statements of operations.
Second Lien Term Loan Agreement
In March 2019, the Company entered into a credit agreement (the “Second Lien Term Loan Agreement”) with Cortland Capital Markets Services LLC, as administrative agent and collateral agent, and Corre Partners Management L.L.C., as representative of the lenders, and the lenders party thereto. The Second Lien Term Loan Agreement provided for a term loan facility in the aggregate principal amount of $51.0 million.
In May 2020, the Company entered into an amendment, limited waiver and consent to credit agreement with an effective date of April 1, 2020, to amend the Second Lien Term Loan Agreement and to consent to the Company’s entering into, among other things, the PPP Loan, as defined and described below.
As a result of the Replacement Term Loan Amendment, as defined and described below, the outstanding balance and any accrued interest was replaced by the Replacement Term Loan, as defined and described below.
During the three and nine months ended September 30, 2021, the Company recognized no amortization of debt issuance costs and during the three and nine months ended September 30, 2020, the Company recognized no and $2.7 million amortization of debt issuance costs, respectively, in the accompanying condensed consolidated statements of operations.
During the three and nine months ended September 30, 2021, the Company recognized no PIK interest and during the three and nine months ended September 30, 2020, the Company recognized $0.1 million and $3.4 million of PIK interest, respectively, in the accompanying condensed consolidated statements of operations.
Replacement Term Loan
In July 2020, the Company entered into the Replacement Term Loan Amendment (the “Eleventh Term Amendment”) to amend the Term Loan Agreement. The Eleventh Term Amendment provided replacement term loans (the “Replacement Term Loan”) that refinanced and replaced the outstanding balances under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement, plus any accrued interest thereon.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The interest on the Replacement Term Loan was LIBOR plus 10.75% per annum, subject to a 1.00% LIBOR floor, of which 4.00% was payable in cash and the remainder of which was PIK interest (provided that the Company may elect on not more than one occasion to pay all interest as PIK interest). The Eleventh Amendment provided for a 1.00% PIK closing fee, which was added to the principal amount of the Replacement Term Loan on the closing date and provided for a prepayment penalty on the entire principal amount of the Replacement Term Loan in an amount equal to 3.0% of the aggregate principal amount prepaid prior to December 31, 2021.
In February 2021, the Company entered into the Senior Term Loan Credit Agreement, as defined and described below. The proceeds received from the initial borrowings under the Senior Term Loan Credit Agreement were used to repay in full all outstanding debt and accrued interest on the Company’s Replacement Term Loan. As a result of the repayment, the Term Loan Agreement was terminated and is no longer in effect. During the nine months ended September 30, 2021, the Company recognized $11.7 million as loss on debt extinguishment in the accompanying condensed consolidated statements of operations, in accordance with ASC 470-50. Included in the loss was $8.9 million of unamortized debt issuance and other costs and a $2.8 million prepayment penalty.
During the three and nine months ended September 30, 2020, the Company recognized $0.2 million of additional costs in selling, general and administrative expense in the accompanying condensed consolidated statements of operations, in accordance with ASC 470-50.
During the three and nine months ended September 30, 2021, the Company recognized 0 amortization of debt issuance costs and $0.4 million amortization of debt issuance costs, respectively, and during the three and nine months ended September 30, 2020, the Company recognized $1.2 million amortization of debt issuance costs in the accompanying condensed consolidated statements of operations.
As of December 31, 2020, the Company had total unamortized debt issuance and discount costs of $9.1 million, all of which were recorded as a reduction of long-term debt in the accompanying condensed consolidated balance sheets.
During the three and nine months ended September 30, 2021, the Company recognized 0 PIK interest and $0.7 million of PIK interest, respectively, and during the three and nine months ended September 30, 2020, the Company recognized $2.5 million PIK interest in the accompanying condensed consolidated statements of operations.
As of December 31, 2020, the Company had $90.2 million of aggregate principal outstanding.
Senior Term Loan Credit Agreement
OnIn February 2, 2021, the Company entered into a credit agreement (the “Senior Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P. (“Atlantic Park”), as administrative agent and collateral agent, and the lenders party thereto (collectively, the “Lenders”).thereto. The Senior Term Loan Credit Agreement providesprovided for an initial term loan facility (the “2021 Senior Term Loan”) in the aggregate principal amount of $100.0 million, all of which has beenwas borrowed by the Company and was used to repay the ReplacementCompany’s former term loan. The Senior Term Loan as described above, andCredit Agreement also provided for a delayed draw term loan facility in the aggregate principal amount of up to $125.0 million, which may be drawn by the Company in up to three separate borrowings through June 30, 2022. A ticking fee of 25 basis points per annum will accrue on
In February 2022, the undrawn portion of the delayed draw term loan facility.
Interest on theCompany entered into an amendment to its Senior Term Loan Credit Agreement is payable in cash onwith Atlantic Park. The amendment provided for a quarterly basis at the interest rate of LIBOR plus 7.50% per annum, subject to a 1.00% LIBOR floor. The Senior Term Loan Credit Agreement includes customary affirmative and negative covenants, including a maximum total net leverage ratio requirement tested quarterly, commencing with the fiscal quarter ending March 31, 2023, not to exceed: 6.50 to 1.00. The Senior Term Loan Credit Agreement also contains a financial covenant that stipulates$35.0 million delayed draw facility, which the Company will not make capital expenditures exceeding $27.5 million during any fiscal year. To the extent that the amount of capital expenditures is less than $27.5 millionborrowed in any fiscal year, up to 50% of the difference may be carried forward and used for capital expenditures in the immediately succeeding fiscal year.
Following a one-year no-call period, the Seniorfull (the “February 2022 Delayed Draw Term Loan Credit Agreement provides for a 2.5% call premium for years two through five and no premium thereafter. All outstanding borrowingsLoan”) under the Senior Term Loan Credit Agreement mature on February 2, 2027.
All of the indebtedness under the Senior Term Loan Credit Agreement is and will be guaranteed by the Company’s existing delayed draw term loan facility and future United States, Canadianallowed the net proceeds to be used for working capital purposes and Mexican subsidiaries and certain other foreign subsidiaries and is and will be secured by substantially all ofto fund low-cost country expansion in the assets ofCompany’s Horizon Europe-Africa operating segment.
The Company accounted for the Company and such guarantors.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pursuant to the SeniorFebruary 2022 Delayed Draw Term Loan Credit Agreement,as a debt modification in accordance with guidance in Accounting Standards Codification (“ASC”) 470-50, “Modifications and Extinguishments”.
In connection with the February 2022 Delayed Draw Term Loan, the Company issued warrants (the “Senior(“Senior Term Loan Amendment Warrants”) to Atlantic Park to purchase in the aggregate up to 3,905,486975,000 shares of the Company’s common stock, with an exercise price of $9.00 per share, subjectshare. On May 24, 2022, shareholders approved the proposal to adjustment as provided inissue common shares upon the exercise of the warrants, making the Senior Term Loan Warrants. The Senior Term LoanAmendment Warrants are exercisable at any time prior to February 2, 2026.10, 2027.
In accordance with guidance in ASC 480, “Distinguishing Liabilities from Equity”Equity” (“ASC 480”), and ASC 815, ““Derivatives and Hedging”Hedging”, the February 2022 Delayed Draw Term Loan and Senior Term Loan Credit Agreement and the Senior Term LoanAmendment Warrants issued are each freestanding instruments and proceeds were allocated to each instrument on a relative fair value basis of $82.4$31.9 million and $17.6$3.1 million, respectively.
The Senior Term Loan Amendment Warrants are not within the scope of ASC 480 and do not meet the criteria for liability classification. However, the Senior Term Loan Amendment Warrants are determined to be indexed to the Company’s common stock and meet the requirements for equity classification pursuant to ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own EquityEquity””. The $17.6$3.1 million allocated to the Senior Term Loan Amendment Warrants was determined using an option pricing method and is recorded in common stock warrants in the accompanying condensed consolidated balance sheets.
Debt issuance costs of $5.4$0.5 million and original issueissuance discount of $3.0$1.1 million were incurred in connection with entry into the SeniorFebruary 2022 Delayed Draw Term Loan Credit Agreement.Loan. During the six months ended June 30, 2022, the $0.5 million of debt issuance costs were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. The total costs of $8.4$1.1 million wereoriginal issuance discount was allocated to each instrument on a relative fair value basis. The $7.1$1.0 million allocated to the SeniorFebruary 2022 Delayed Draw Term Loan Credit Agreement will be amortized into interest expense over the contractual term of the loan using the effective interest method and the $1.3$0.1 million allocated to the Senior Term Loan Amendment Warrants was recorded as a reduction of equity.
The Company determined the fair value of the SeniorFebruary 2022 Delayed Draw Term Loan Credit Agreement using a discount rate build up approach. The debt discount of $17.6$3.1 million created by the relative fair value allocation of the equity component is being amortized as additional non-cash interest expense using the effective interest method over the contractual term of the loan. The debt discount is recorded as a reduction of long-term debt in the accompanying condensed consolidated balance sheets.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On June 27, 2022, the Company borrowed the remaining $90.0 million under the Company’s existing delayed draw term loan facility (the “June 2022 Delayed Draw Term Loan”). The proceeds of the June 2022 Delayed Draw Term Loan were used by the Company to repay $85.0 million of principal and $1.7 million of accrued interest on the Company’s Convertible Notes, as defined below, which matured on July 1, 2022. Original issuance discount of $2.7 million was incurred in connection with the June 2022 Delayed Draw Term Loan and will be amortized into interest expense over the contractual term of the loan using the effective interest method.
Following the full draw on the delayed draw term loans as of June 30, 2022, the February 2022 Delayed Draw Term Loan, the June 2022 Delayed Draw Term Loan and the 2021 Senior Term Loan are collectively referred to as the Senior Term Loan. Interest on the Senior Term Loan is payable in cash on a monthly or quarterly basis, at the election of the Company, at the interest rate of LIBOR plus 7.50% per annum, subject to a 1.00% LIBOR floor. All outstanding borrowings under the Senior Term Loan Credit Agreement mature on February 2, 2027.
During the three and ninesix months ended SeptemberJune 30, 2022, the Company recognized $1.0 million and $1.8 million of amortization of debt issuance and discount costs, respectively. During the three and six months ended June 30, 2021 the Company recognized $0.7 million and $1.8$1.1 million respectively, of amortization of debt issuance and discount costs, respectively. Amortization of debt issuance and discount costs is included in interest expense in the accompanying condensed consolidated statements of operations.
As of September 30, 2021, the Company had total unamortized debt issuance and discount costs of $22.9 million, all of which were recorded as a reduction of long-term debt in the accompanying condensed consolidated balance sheets.
As of September 30, 2021, the Company had $100.0 million aggregate principal outstanding.
Convertible Notes
In February 2017, the Company completed a public offering of 2.75% Convertible Senior Notes (the “Convertible Notes”) in an aggregate principal amount of $125.0 million. Interest is payable on January 1 and July 1During the second quarter of each year, beginning on July 1, 2017. The Convertible Notes are convertible into 5,005,000 shares2022, the Company issued Series B Preferred Stock, as defined below, in exchange for $40.0 million of the Company’s common stock, based on an initial conversion price of $24.98 per share. The Convertible Notes will mature on July 1, 2022 unless earlier converted. In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions (the “Convertible Note Hedges”) in privately negotiated transactions with certain of the underwriters or their affiliates (in this capacity, the “option counterparties”). The Convertible Note Hedges provide the Company with the option to acquire, on a net settlement basis, 5,005,000 shares of its common stock, which is equal to the number of shares of common stock that notionally underlie the Convertible Notes, at a strike price of $24.98, which corresponds to the conversion priceoutstanding principal balance of the Convertible Notes. The Convertible Note Hedges have an expiration date that isOn July 1, 2022, the same as the maturity dateproceeds of the Convertible Notes, subjectJune 2022 Delayed Draw Term Loan were used to earlier exercise. The Convertible Note Hedges have customary anti-dilution provisions similar to the Convertible Notes.
The Convertible Notes were not convertible during the third quarterrepay $85.0 million of 2021, as no conditions allowing holdersprincipal and $1.7 million of the Convertible Notes to convert have been met. Should conditions allowing holders of the Convertible Notes to convert be met in a future quarter, the Convertible Notes will be convertible at their holders’ option during the immediately following quarter.accrued interest. As of SeptemberJune 30, 2021,2022, the if-converted value ofcombined $86.7 million was held in restricted cash in the Convertible Notes did not exceed the principal value of those Convertible Notes.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. Because the Company may elect to settle conversion in cash, the Company separated the Convertible Notes into their liability and equity components by allocating the issuance proceeds to each of those components in accordance with ASC 470-20. The Company first determined the fair value of the liability component by estimating the value of a similar liability that does not have an associated equity component. The Company then deducted that amount from the issuance proceeds to arrive at a residual amount, which represents the equity component. The Company accounted for the equity component as a debt discount (with an offset to paid-in capital in excess of par value). The debt discount created by the equity component is being amortized as additional non-cash interest expense using the effective interest method over the contractual term of the Convertible Notes ending on July 1, 2022.accompanying condensed consolidated balance sheets.
During the three and ninesix months ended SeptemberJune 30, 2022, the Company recognized interest expense of $2.8 million and $5.6 million, respectively, and during the three and six months ended June 30, 2021, the Company recognized total interest expense of $2.6$2.7 million and $7.9 million and during the three and nine months ended September 30, 2020, the Company recognized total interest expense of $2.5 million and $7.6$5.3 million, respectively, in the accompanying condensed consolidated statements of operations. The interest expense recognized consists of contractual interest coupon, amortization of debt discount and amortization of debt issuance costs on the Convertible Notes, and is as follows:costs.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (dollars in thousands) |
| Contractual interest coupon on convertible debt | | $ | 860 | | | $ | 860 | | | $ | 2,580 | | | $ | 2,600 | |
| Amortization of debt issuance costs | | 130 | | | 130 | | | 400 | | | 400 | |
| Amortization of "equity discount" related to debt | | 1,640 | | | 1,510 | | | 4,940 | | | 4,550 | |
| Total | | $ | 2,630 | | | $ | 2,500 | | | $ | 7,920 | | | $ | 7,550 | |
As a result of the Company’s entering into the Senior Term Loan Credit Agreement entered into in Februarythe first quarter of 2021, which includes the delayed drawCompany’s former term loan facility described above, the Company has the ability(the “Replacement Term Loan”) was terminated and intent to refinance the Convertible Notes, which mature on July 1, 2022.
is no longer in effect. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had totalno aggregate principal outstanding and no unamortized debt issuance and discount costs.
During the three and six months ended June 30, 2022, the Company recognized no amortization of debt issuance costs and no paid-in-kind (“PIK”) interest. During the three and six months ended June 30, 2021, the Company recognized no amortization of $6.1debt issuance costs and $0.4 million and $11.5 million,amortization of debt issuance costs, respectively, which were recorded as a reduction of long-term debtin interest expense in the accompanying condensed consolidated balance sheets.
Asstatements of Septemberoperations. During the three and six months ended June 30, 2021, and December 31, 2020, the Company had $125.0recognized 0 PIK interest and $0.7 million of aggregate principal outstanding.PIK interest, respectively, in interest expense in the accompanying condensed consolidated statements of operations.
Paycheck Protection Program Loan
8. Redeemable Preferred Stock
In April 2020, Horizon GlobalFebruary 2022, the Company executed a commitment letter with Corre Partners Management, LLC, (the “U.S. Borrower”acting on behalf of certain investment funds for which it acts as investment manager (collectively, the “Corre Funds”), to issue, solely at the Company’s option, up to $40.0 million of a direct U.S.-based subsidiarynew series of the Company’s preferred stock, the proceeds of which would be used by the Company receivedto repay a loan from PNC Bank, National Association for $8.7 million, pursuant to the Paycheck Protection Program (the “PPP Loan”) under Division A, Title Iportion of the Coronavirus Aid, ReliefCompany’s Convertible Notes and Economic Security (“CARES”) Act. The PPP Loan, which is in the form of a note dated April 18, 2020 issued by the U.S. Borrower, matures on April 18, 2022. Funds from the PPP Loan may be used for payroll, costs used to continue group health care benefits, rentworking capital and utilities. Under the terms of the PPP Loan, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act.
The Company submitted its PPP Loan application in good faith in accordance with the CARES Act and the guidance issued by the Small Business Administration (the “SBA”), including the SBA’s Paycheck Protection Program’s Frequently Asked Questions. During 2020, the Company, in accordance with the final guidance issued by the United States Department of the Treasury (the “Treasury”), met the need and sized based criteria of the program.general corporate purposes.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AsOn June 27, 2022, the Company entered into a Preferred Stock Purchase Agreement (the “Purchase Agreement”) with the Corre Funds pursuant to which the Corre Funds purchased 40,000 shares of September 30, 2021, the Company’s application of loan forgiveness of $7.1Series B Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”), in exchange for $40.0 million aggregate principal amount of the $8.7 million of funds originally received is subject to the SBA’s final determination of forgiveness,Company’s Convertible Notes, which we expect to receive in the fourth quarter of 2021, based on the review timelines once a borrower has submitted its application in accordance with the issued regulations. The potential loan forgiveness is determined, subject to limitations, based on the use of loan proceeds for payment of qualifying expenses over the 24 weeks after the loan proceeds were disbursed. The unforgiven portion of the loan has an interest rate of 1.0% per annum. In July 2021, the note was amended to make the unforgiven portion payable over five years on a monthly basis. The Company has deferred interest payments until the Company’s application for forgiveness is completed in accordance with the guidance issuedcancelled by the SBA and Treasury andCompany. Pursuant to the terms of the Company’s PPP Loan. While we currently believe that our usePurchase Agreement, the Company also issued the Corre Funds an additional 1,000 shares of Series B Preferred Stock in satisfaction of its obligation to pay Corre Funds a commitment fee pursuant to the terms of the loan proceedscommitment letter. During the six months ended June 30, 2022, the Company recognized the $1.0 million commitment fee in other expense, net in the accompanying condensed consolidated statements of operations.
The Series B Preferred Stock accrue dividends in kind at a rate of 11.0% per annum, subject to increase to a maximum of 16.0% per annum upon the occurrence of certain events, including if the Series B Preferred Stock is not redeemed on or prior to the first anniversary of a repayment of the Senior Term Loan or refinancing of borrowings outstanding under the Senior Term Loan Credit Agreement. Dividends on each share of Series B Preferred Stock accrue based on the liquidation value of the Series B Preferred Stock, which is the stated value of $1,000 per share plus accrued and unpaid dividends (the “Liquidation Value”).
The Series B Preferred Stock is subject to voluntary redemption by the Company at its option and subject to mandatory redemption upon the first to occur of a change in control and the one-year anniversary of the maturity of the Senior Term Loan, which is February 2, 2028. The redemption price with respect to each share of Series B Preferred Stock is payable in cash and is equal to (i) 102.0% of the Liquidation Value if the redemption occurs on or before December 31, 2022, (ii) 105.0% of the Liquidation Value if the redemption occurs after December 31, 2022 but on or before December 31, 2023 and (iii) 106.0% of the Liquidation Value if the redemption occurs after December 31, 2023; provided that, in any event, the cash consideration a holder of Series B Preferred Stock will meetbe entitled to receive from the conditions for forgiveness of $7.1 million of our PPP Loan, there canCompany (including the redemption price commitment fees, dividends and other distributions) will be no assurance that forgiveness for any portionless than 110.0% of the PPP Loanconsideration paid to the Company in connection with the purchase of such Series B Preferred Stock.
The Series B Preferred Stock will be obtained.convertible into shares of the Company’s common stock, par value, at the option of the Corre Funds and subject to shareholder approval, if the Company’s total net leverage ratio (as defined in the Senior Term Loan Credit Agreement), commencing with the fiscal quarter ending March 31, 2023, exceeds 6.50 to 1.00 or all of the outstanding Series B Preferred Stock is not redeemed on or before the earlier of the 91st day after a repayment of the Senior Term Loan and February 10, 2025. If the Series B Preferred Stock becomes convertible, each share of Series B Preferred Stock would be convertible into a number of shares of the Company’s common stock equal to the conversion value divided by 90% of the volume-weighted average price of the common stock over a period of 30 trading days prior to such conversion, with the conversion value being equal to (i) 102.0% of the Liquidation Value if the conversion occurs on or before December 31, 2022, (ii) 105.0% of the Liquidation Value if the conversion occurs after December 31, 2022 but on or before December 31, 2023 and (iii) 106.0% of the Liquidation Value if the conversion occurs after December 31, 2023.
CovenantIn accordance with guidance in ASC 480, the Series B Preferred Stock met the definition of a mandatorily redeemable financial instrument and Liquidity Matters
criteria for liability classification and is recorded in long-term debt in the accompanying condensed consolidated balance sheets. The Company is in compliance with alldetermined the fair value of the Series B Preferred Stock to be $41.0 million. The Series B Preferred Stock will be accreted up to its financial covenants as of September 30, 2021.mandatory redemption value and into interest expense using the effective interest method.
9. Leases
The Company leases certain facilities, automobiles and equipment under non-cancellable operating leases. Our leases have remaining lease terms of one to seven years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheets; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Most leases include one or more options to renew. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use (“ROU”) assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in the lease term. The Company combines lease and non-lease components, which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Refer to Note 3, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2020, for more information.
Supplemental information for the Company’s leases is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| | | (dollars in thousands) |
| Operating lease cost | | $ | 3,040 | | | $ | 4,260 | | | $ | 10,670 | | | $ | 11,460 | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | | 2021 | | 2020 |
| Operating cash flows from operating leases | | $ | 9,980 | | | $ | 12,060 | |
| ROU assets obtained in exchange for operating lease obligations | | $ | 910 | | | $ | 4,080 | |
| | | | | | | | | | | | | | |
| | | September 30,
2021 | | December 31,
2020 |
| Weighted average remaining lease term (years) | | 5.2 | | 6.0 |
| Weighted average discount rate | | 8.4 | % | | 8.4 | % |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Contingencies
In April 2020, the Company agreed to a settlement (the “Settlement”) related to certain intellectual property infringement claims made against one ofSupplemental information for the Company’s subsidiaries in its Horizon Europe-Africa operating segment. The Company settled all historical and future associated claims for $4.4 million to be paid evenly in semi-annual installments on June 30 and December 31 of each year through December 31, 2024. As a result of the Settlement, the Company recorded a $1.5 million charge during the first quarter of 2020 in cost of sales of the accompanying condensed consolidated statements of operations. During the three and nine months ended September 30, 2021, the Company recorded $0.2 million and $0.5 million of royalties, respectively, and during the three and nine months ended September 30, 2020, the Company recorded $0.2 million and $0.4 million of royalties, respectively, all of which were recorded in cost of sales in the accompanying condensed consolidated statements of operations.leases is as follows:
As of September 30, 2021 and December 31, 2020, the Company had recorded $0.9 million and $0.9 million, respectively, in prepaid expenses and other current assets and $1.2 million and $1.8 million, respectively, in other assets, in the accompanying condensed consolidated balance sheets related to the royalties to be recognized by the Company over the life of future programs connected to the Settlement. In addition, as of September 30, 2021 and December 31, 2020, the Company had $0.9 million and $1.0 million, respectively, in accrued liabilities and $2.3 million and $2.9 million, respectively, in other long-term liabilities, in the accompanying condensed consolidated balance sheets related to the remaining semi-annual installment payments. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| | | (dollars in thousands) |
| Operating lease cost | | $ | 3,570 | | | $ | 3,760 | | | $ | 7,240 | | | $ | 7,630 | |
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | | 2022 | | 2021 |
| Operating cash flows from operating leases | | $ | 7,170 | | | $ | 6,120 | |
| ROU assets obtained in exchange for operating lease obligations | | $ | 2,930 | | | $ | 540 | |
| | | | | | | | | | | | | | |
| | | June 30,
2022 | | December 31,
2021 |
| Weighted average remaining lease term (years) | | 4.8 | | 5.1 |
| Weighted average discount rate | | 8.3 | % | | 8.4 | % |
11.10. Earnings (Loss) per Share
Basic earnings (loss) per share is computed using net income (loss) attributable to Horizon Global and the number of weighted average shares outstanding. Diluted earnings (loss) per share is computed using net income (loss) attributable to Horizon Global and the number of weighted average shares outstanding, adjusted to give effect to the assumed exercise of outstanding stock options and warrants, vesting of restricted shares outstanding, and conversion of the Convertible Notes, where dilutive to earnings per share.
A reconciliation of the numerator and the denominator of basic income (loss) per share attributable to Horizon Global and diluted income (loss) per share attributable to Horizon Global is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (dollars in thousands, except for per share amounts) |
| Numerator: | | | | | | | | |
| Net (loss) income | | $ | (22,430) | | | $ | 960 | | | $ | (49,380) | | | $ | (14,190) | |
| Less: Net loss attributable to noncontrolling interest | | (230) | | | (330) | | | (500) | | | (670) | |
| Net (loss) income attributable to Horizon Global | | $ | (22,200) | | | $ | 1,290 | | | $ | (48,880) | | | $ | (13,520) | |
| Denominator: | | | | | | | | |
| Weighted average shares outstanding, basic | | 27,633,375 | | | 27,022,652 | | | 27,488,062 | | | 26,883,818 | |
| Dilutive effect of common stock equivalents | | — | | | 5,724,551 | | | — | | | — | |
| Weighted average shares outstanding, diluted | | 27,633,375 | | | 32,747,203 | | | 27,488,062 | | | 26,883,818 | |
| | | | | | | | |
| Basic (loss) income per share attributable to Horizon Global | | $ | (0.80) | | | $ | 0.05 | | | $ | (1.78) | | | $ | (0.50) | |
| Diluted (loss) income per share attributable to Horizon Global | | $ | (0.80) | | | $ | 0.04 | | | $ | (1.78) | | | $ | (0.50) | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (dollars in thousands, except for per share amounts) |
| Numerator: | | | | | | | | |
| Net (loss) income from continuing operations | | $ | (2,770) | | | $ | 1,590 | | | $ | (16,960) | | | $ | (31,660) | |
| Add: Loss from discontinued operations, net of income tax | | — | | | — | | | — | | | (500) | |
| Less: Net loss attributable to noncontrolling interest | | (300) | | | (340) | | | (970) | | | (1,010) | |
| Net (loss) income attributable to Horizon Global | | $ | (2,470) | | | $ | 1,930 | | | $ | (15,990) | | | $ | (31,150) | |
| Denominator: | | | | | | | | |
| Weighted average shares outstanding, basic | | 27,286,600 | | | 25,939,741 | | | 27,019,554 | | | 25,651,789 | |
| Dilutive effect of common stock equivalents | | — | | | 7,389,365 | | | — | | | — | |
| Weighted average shares outstanding, diluted | | 27,286,600 | | | 33,329,106 | | | 27,019,554 | | | 25,651,789 | |
| | | | | | | | |
| Basic (loss) income per share attributable to Horizon Global | | | | | | | | |
| Continuing operations | | $ | (0.09) | | | $ | 0.07 | | | $ | (0.59) | | | $ | (1.19) | |
| Discontinued operations | | — | | | — | | | — | | | (0.02) | |
| Total | | $ | (0.09) | | | $ | 0.07 | | | $ | (0.59) | | | $ | (1.21) | |
| Diluted (loss) income per share attributable to Horizon Global | | | | | | | | |
| Continuing operations | | $ | (0.09) | | | $ | 0.06 | | | $ | (0.59) | | | $ | (1.19) | |
| Discontinued operations | | — | | | — | | | — | | | (0.02) | |
| Total | | $ | (0.09) | | | $ | 0.06 | | | $ | (0.59) | | | $ | (1.21) | |
As a result of the net loss from continuing operations for the three months ended SeptemberJune 30, 20212022 and ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the effect of certain dilutive securities was excluded from the computation of weighted average diluted shares outstanding, as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents are as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Number of options | Number of options | | 18,961 | | | 18,961 | | | 18,961 | | | 18,961 | | Number of options | | 18,961 | | | 18,961 | | | 18,961 | | | 18,961 | |
| Exercise price of options | Exercise price of options | | $9.20 - $11.02 | | $9.20 - $11.02 | | $9.20 - $11.02 | | $9.20 - $11.02 | Exercise price of options | | $9.20 - $11.02 | | $9.20 - $11.02 | | $9.20 - $11.02 | | $9.20 - $11.02 |
| Restricted stock units | Restricted stock units | | 1,761,463 | | | — | | | 1,863,498 | | | 1,820,186 | | Restricted stock units | | 2,228,826 | | | — | | | 2,124,218 | | | 1,915,451 | |
Convertible Notes | Convertible Notes | | 5,005,000 | | | 5,005,000 | | | 5,005,000 | | | 5,005,000 | | Convertible Notes | | 5,005,000 | | | 5,005,000 | | | 5,005,000 | | | 5,005,000 | |
| Convertible Notes warrants | Convertible Notes warrants | | 5,005,000 | | | 5,005,000 | | | 5,005,000 | | | 5,005,000 | | Convertible Notes warrants | | 5,005,000 | | | 5,005,000 | | | 5,005,000 | | | 5,005,000 | |
| Common stock warrants | Common stock warrants | | 9,231,146 | | | — | | | 8,810,164 | | | 6,376,519 | | Common stock warrants | | 10,206,146 | | | 3,905,486 | | | 9,985,290 | | | 8,596,184 | |
For purposes(a) Represents the dilutive impact of determining diluted loss per share,125.0 million of Convertible Notes outstanding. See Note 7, Long-term Debt, for additional information on the Company has elected a policy to assume that the principal portionretirement of the Company’s Convertible Notes, as described in Note 8, Long-term Debt, is settled in cash and the conversion premium is settled in shares. Therefore, the Company has adopted a policy of calculating the diluted loss per share effect of the Convertible Notes using the treasury stock method. As a result, the dilutive effect of the Convertible Notes is limited to the conversion premium, which is reflected in the calculation of diluted loss per share as if it were a freestanding written call option on the Company’s shares. Using the treasury stock method, the warrants issued in connection with the issuance of the Convertible Notes are considered to be dilutive when they are in the money relative to the Company’s average common stock price during the period. The Convertible Note Hedges purchased in connection with the issuance of the Convertible Notes are always considered to be anti-dilutive and therefore do not impact the Company’s calculation of diluted loss per share.Notes.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.11. Equity Awards
Description of the Plans
In June 2020, the shareholders approvedHorizon Global employees, non-employee directors and certain consultants participate in the Horizon Global Corporation 2020 Equity and Incentive Compensation Plan (the “Horizon 2020 Plan”). Horizon employees, non-employee directors and certain consultants participate in the Horizon 2020 Plan. The Horizon 2020 Plan authorizes the Compensation Committee of the Horizon Global Board of Directors to grant stock options (including “incentive stock options” as defined in Section 422 of the U.S. Internal Revenue Code), appreciation rights, restricted shares, restricted stock units, performance shares, performance stock units, cash incentive awards, dividend equivalents and certain other awards based upon terms and conditions described in the Horizon 2020 Plan. No more than 4.1 million Horizon common shares may be delivered underThe Company generally awards grants on an annual basis.
In March 2022, the Horizon 2020 Plan, plus (A) the total number of shares remaining available for awards under the Horizon 2015 Plan, as definedCompany granted restricted stock units (“RSUs”) and described below, as of June 19, 2020, plus (B) the shares that are subjectperformance stock units (“PSUs”) to awards granted under the Horizon 2020 Plan or the Horizon 2015 Plan that are added (or added back, as applicable) to the aggregate number of shares available under the Horizon 2020 Plan pursuant to the share counting rules of the Horizon 2020 Plan. These shares may be shares of original issuance or treasury shares, or a combination of both.
Prior to the Horizon 2020 Plan,certain key employees and non-employee directors participated indirectors. The grant date fair values for the Horizon Global Corporation 2015 EquityRSUs and Incentive Compensation Plan (as amended and restated,PSUs are based on the “Horizon 2015 Plan”). The Horizon 2015 Plan authorized the Compensation Committeeclosing trading price of the Horizon BoardCompany’s common stock on the date of Directors to grant stock options (including “incentive stock options” as defined in Section 422 ofgrant. The RSUs vest ratably over a three-year period, while the U.S. Internal Revenue Code), restricted shares, restricted stock units,PSUs cliff vest after a three-year period, upon achieving the performance shares,criteria. The performance stock units, cash incentive awards, and certain other awardscriteria for the PSUs is based on or related to our common stock to Horizon employees and non-employee directors.the Company’s three-year cumulative EBITDA.
Stock Options
Horizon’s stock option activity is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Stock Options | | Weighted Average Exercise Price | | Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Outstanding at December 31, 2020 | | 18,961 | | | $ | 10.43 | | | | | |
| Granted | | — | | | — | | | | | |
| Exercised | | — | | | — | | | | | |
| Canceled, forfeited | | — | | | — | | | | | |
| Expired | | — | | | — | | | | | |
| Outstanding at September 30, 2021 | | 18,961 | | | $ | 10.43 | | | 4.2 | | $ | — | |
As of September 30, 2021, there was no unrecognized compensation cost related to stock options. During the three and ninesix months ended SeptemberJune 30, 20212022, the Company recognized $0.8 million and 2020, there was no stock-based$2.1 million of stock compensation expense, recognized by the Companyrespectively, related to stock options. As of SeptemberRSUs and PSUs and for the three and six months ended June 30, 2021, the aggregate intrinsic valueCompany recognized $0.9 million and $1.7 million of outstanding stock options was immaterial. Stock-basedcompensation expense, respectively, related to RSUs and PSU. Stock compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
Restricted Stock Units
During the nine months ended September 30, 2021, the Company granted an aggregate of 532,899 restricted stock units (“RSUs”) and performance stock units (“PSUs”) to certain key employees and non-employee directors. The total grants consisted of: (i) 83,482 RSUs that vested during the period; (ii) 153,563 time-based RSUs vesting on a ratable basis on March 1, 2022, March 1, 2023 and March 1, 2024; (iii) 230,350 PSUs vesting on April 1, 2024 and (iv) 65,504 time-based RSUs vesting on May 28, 2022.
During 2020, the Company granted an aggregate of 1,502,072 RSUs and PSUs to certain key employees and non-employee directors. The total grants consisted of: (i) 284,859 time-based RSUs vesting on a ratable basis on March 3, 2021, March 3, 2022 and March 3, 2023; (ii) 277,228 time-based RSUs vesting on June 24, 2021; (iii) 21,351 time-based RSUs vesting on a ratable basis on April 2, 2021, March 3, 2022 and March 3, 2023 and (iv) 918,634 PSUs vesting on March 3, 2023.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The performance criteria for the PSUs granted is based on the Company’s three-year cumulative EBITDA. The grant date fair values for the PSUs and RSUs are based on the closing trading price of the Company’s common stock on the date of grant.
The grant date fair value of RSUs is expensed over the vesting period. Changes in the number of RSUs outstanding for the nine months ended September 30, 2021 are as follows:
| | | | | | | | | | | | | | |
| | Number of Restricted Stock Units(a) | | Weighted Average Grant Date Fair Value |
| Outstanding at December 31, 2020 | | 1,800,682 | | | $ | 3.14 | |
| Granted | | 532,899 | | | 8.98 | |
| Vested | | (499,826) | | | 2.64 | |
| Canceled, forfeited | | (71,669) | | | 5.00 | |
| Outstanding at September 30, 2021 | | 1,762,086 | | | $ | 4.97 | |
(a)Includes PSUs at 100% attainment.
As of September 30, 2021, there was $4.8 million in unrecognized compensation costs related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.0 years.
During the three and nine months ended September 30, 2021, the Company recognized $0.9 million and $2.6 million, respectively, of stock-based compensation expense related to RSUs, and during the three and nine months ended September 30, 2020, the Company recognized $0.9 million and $2.2 million, respectively, of stock-based compensation expense related to RSUs. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13.12. Shareholders’ Equity
Preferred Stock
The Company is authorized to issue 100,000,000 shares of preferred stock, par value of $0.01 per share. As of September 30, 2021 and December 31, 2020, there were no preferred shares outstanding.
Common Stock
The Company is authorized to issue 400,000,000 shares of Horizon Global common stock, par value of $0.01 per share. As of September 30, 2021, there were 27,973,153 shares of common stock issued and 27,286,647 shares of common stock outstanding. As of December 31, 2020, there were 27,089,673 shares of common stock issued and 26,403,167 shares of common stock outstanding.
Common Stock Warrants
In March 2019,February 2022, in connection with the Second LienFebruary 2022 Delayed Draw Term Loan, the Company became obligated to issue detachable warrants to purchase up to 6.25 million shares of the Company’s common stock, which can be exercised on a cashless basis over a five year term with an exercise price of $1.50 per share.
In February 2021, in connection with the Senior Term Loan Credit Agreement, the Company issued the Senior Term Loan Amendment Warrants to purchase up to 3,905,486975,000 shares of the Company’s common stock, which can be exercised on a cashless basis over a five year term with an exercise price of $9.00 per share. See Note 8,7, Long-term Debt, for additional information.
As of September 30, 2021, warrants to purchase 1,228,490 shares of the Company’s common stock have been exercised, resulting in the issuance of 972,924 shares of the Company’s common stock. As of September 30, 2021, warrants to purchase 9,231,146 shares of the Company’s common stock were issued and remain outstanding. During the ninesix months ended SeptemberJune 30, 2022, no warrants were exercised. During the six months ended June 30, 2021, a related-party entity, JKI Holdings, LLC, an entity owned by the chair of our board of directors, exercised in full the warrants that it originally received in connection with thewarrants issued in March 2019, issuance described above, and paid the exercise price in cash and received 278,283 shares of common stock. During the nine months ended September 30, 2021, the Company recognized $0.3 million of non-cash transactions in connection with warrants exercised.
Accumulated Other Comprehensive Income (Loss) (“AOCI”)
The change in AOCI attributable to Horizon Global by component, net of tax, for the nine months ended September 30, 2021 is as follows:
| | | | | | | | |
| | Foreign Currency Translation and Other |
| | (dollars in thousands) |
Balance at January 1, 2021 | | $ | (6,540) | |
Net unrealized losses arising during the period | | (4,070) | |
Net change | | (4,070) | |
Balance at September 30, 2021 | | $ | (10,610) | |
The change in AOCI attributable to Horizon Global by component, net of tax, for the nine months ended September 30, 2020 is as follows:
| | | | | | | | |
| | Foreign Currency Translation and Other |
| | (dollars in thousands) |
Balance at January 1, 2020 | | $ | (9,790) | |
Net unrealized losses arising during the period | | (400) | |
Net change | | (400) | |
Balance at September 30, 2020 | | $ | (10,190) | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14.13. Segment Information
The Company groups its business into operating segments generally by the region in which sales and manufacturing efforts are focused, which are grouped on the basis of similar product, market and operating factors. Each operating segment has discrete financial information evaluated regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance. The Company reports the results of its business in 2 operating segments: Horizon Americas and Horizon Europe-Africa. Horizon Americas is comprised of the Company’s North American operations, and prior to the Brazil Sale also included the Company’s South American operations. Horizon Europe-Africa is comprised of the Company’s European and South African operations. See below for further information regarding the types of products and services provided within each operating segment.
The Company previously had a thirdsegment and the disaggregation of sales channels within each operating segment, Horizon Asia-Pacific (“APAC”); however, the APAC segment was sold on September 19, 2019, and is presented as a discontinued operation in the accompanying condensed consolidated financial statements. During the first quarter of 2020, the remaining post-closing conditions of the sale were completed, resulting in a true up to net cash proceeds, which were recognized as a loss on sale of discontinued operations of $0.5 million in accordance with Accounting Standards Codification 205, “Discontinued Operations”.segment.
Horizon Americas - A market leader in the design, manufacture and distribution of a wide variety of high-quality, custom engineered towing, trailering and cargo management products and related accessories. These products are designed to support aftermarket, automotive OEMs, automotive OESs, aftermarketindustrial and retail customers in the agricultural, automotive, construction, industrial, marine, military, recreational vehicle, trailer and utility end markets. Products include vehicle trailer hitches, brake controllers, cargo management, heavy-duty towing products, jacks and couplers, protection/securing systems, trailer structural and electrical components, tow bars, vehicle roof racks vehicle trailer hitches and additional accessories.
Horizon Europe‑Africa - With a product offering similar to Horizon Americas, Horizon Europe-Africa focuses its sales and manufacturing efforts in the Europe and Africa regions of the world.
The Company’s operating segment activity is as follows:
| | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | (dollars in thousands) | | | (dollars in thousands) |
| Net Sales | Net Sales | | Net Sales | |
| Horizon Americas | Horizon Americas | | $ | 115,850 | | | $ | 119,140 | | | $ | 354,060 | | | $ | 285,630 | | Horizon Americas | | $ | 110,920 | | | $ | 128,380 | | | $ | 212,860 | | | $ | 238,210 | |
| Horizon Europe-Africa | Horizon Europe-Africa | | 80,690 | | | 82,490 | | | 263,790 | | | 199,740 | | Horizon Europe-Africa | | 70,300 | | | 93,740 | | | 149,220 | | | 183,100 | |
| Total | Total | | $ | 196,540 | | | $ | 201,630 | | | $ | 617,850 | | | $ | 485,370 | | Total | | $ | 181,220 | | | $ | 222,120 | | | $ | 362,080 | | | $ | 421,310 | |
| Operating Profit (Loss) | Operating Profit (Loss) | | | | | | | | | Operating Profit (Loss) | | | | | | | | |
| Horizon Americas | Horizon Americas | | $ | 12,400 | | | $ | 13,170 | | | $ | 41,000 | | | $ | 19,330 | | Horizon Americas | | $ | 1,390 | | | $ | 16,760 | | | $ | (2,910) | | | $ | 28,600 | |
| Horizon Europe-Africa | Horizon Europe-Africa | | (150) | | | 2,440 | | | 2,550 | | | (6,040) | | Horizon Europe-Africa | | (4,250) | | | 1,240 | | | (5,790) | | | 2,700 | |
| Corporate | Corporate | | (5,920) | | | (7,050) | | | (19,110) | | | (19,380) | | Corporate | | (7,450) | | | (6,670) | | | (15,170) | | | (13,190) | |
| Total | Total | | $ | 6,330 | | | $ | 8,560 | | | $ | 24,440 | | | $ | (6,090) | | Total | | $ | (10,310) | | | $ | 11,330 | | | $ | (23,870) | | | $ | 18,110 | |
Disaggregation of Sales
The Company disaggregates net sales from contracts with customers by major sales channel. The Company determined that disaggregating its net sales into these categories best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The aftermarket channel represents sales to automotive installers and warehouse distributors. The automotive OEM channel represents sales to automotive vehicle manufacturers. The automotive OES channel primarily represents sales to automotive vehicle dealerships. The retail channel represents sales to direct-to-consumer retailers. The e-commerce channel represents sales to retailers whose customers utilize the Internet to purchase the Company’s products. The industrial channel represents sales to non-automotive manufacturers and dealers of agricultural equipment, trailers, and other custom assemblies. The other channel represents sales that do not fit into a category described above and these sales are considered ancillary to the Company’s core operating activities.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.The Company’s net sales by segment and disaggregated by major sales channel are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 |
| | Horizon Americas | | Horizon Europe-Africa | | Total |
| | (dollars in thousands) |
| Net Sales | | | | | | |
| Aftermarket | | $ | 23,680 | | | $ | 17,190 | | | $ | 40,870 | |
| Automotive OEM | | 27,040 | | | 36,280 | | | 63,320 | |
| Automotive OES | | 4,420 | | | 13,430 | | | 17,850 | |
| Retail | | 27,710 | | | — | | | 27,710 | |
| E-commerce | | 17,980 | | | 2,930 | | | 20,910 | |
| Industrial | | 10,090 | | | 240 | | | 10,330 | |
| Other | | — | | | 230 | | | 230 | |
| Total | | $ | 110,920 | | | $ | 70,300 | | | $ | 181,220 | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | Horizon Americas | | Horizon Europe-Africa | | Total |
| | (dollars in thousands) |
| Net Sales | | | | | | |
| Aftermarket | | $ | 40,560 | | | $ | 26,130 | | | $ | 66,690 | |
| Automotive OEM | | 22,650 | | | 44,190 | | | 66,840 | |
| Automotive OES | | 4,240 | | | 19,970 | | | 24,210 | |
| Retail | | 32,610 | | | — | | | 32,610 | |
| E-commerce | | 19,730 | | | 1,960 | | | 21,690 | |
| Industrial | | 8,590 | | | 630 | | | 9,220 | |
| Other | | — | | | 860 | | | 860 | |
| Total | | $ | 128,380 | | | $ | 93,740 | | | $ | 222,120 | |
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Horizon Americas | | Horizon Europe-Africa | | Total |
| | (dollars in thousands) |
| Net Sales | | | | | | |
| Aftermarket | | $ | 52,120 | | | $ | 36,360 | | | $ | 88,480 | |
| Automotive OEM | | 49,590 | | | 76,200 | | | 125,790 | |
| Automotive OES | | 8,150 | | | 30,210 | | | 38,360 | |
| Retail | | 47,530 | | | — | | | 47,530 | |
| E-commerce | | 34,050 | | | 4,610 | | | 38,660 | |
| Industrial | | 21,420 | | | 650 | | | 22,070 | |
| Other | | — | | | 1,190 | | | 1,190 | |
| Total | | $ | 212,860 | | | $ | 149,220 | | | $ | 362,080 | |
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Horizon Americas | | Horizon Europe-Africa | | Total |
| | (dollars in thousands) |
| Net Sales | | | | | | |
| Aftermarket | | $ | 72,250 | | | $ | 48,550 | | | $ | 120,800 | |
| Automotive OEM | | 50,170 | | | 92,750 | | | 142,920 | |
| Automotive OES | | 8,100 | | | 36,030 | | | 44,130 | |
| Retail | | 55,190 | | | — | | | 55,190 | |
| E-commerce | | 34,250 | | | 3,390 | | | 37,640 | |
| Industrial | | 18,250 | | | 1,180 | | | 19,430 | |
| Other | | — | | | 1,200 | | | 1,200 | |
| Total | | $ | 238,210 | | | $ | 183,100 | | | $ | 421,310 | |
14. Income Taxes
At the end of each interim reporting period, the Company makes an estimate of the annual effective income tax rate. Tax items included in the annual effective income tax rate are pro-rated for the full year and tax items discrete to a specific quarter are included in the effective income tax rate for that quarter. Effective tax rates vary from period to period as separate calculations are performed for those countries where the Company's operations are profitable and whose results continue to be tax-effected and for those countries where full deferred tax valuation allowances exist and are maintained. In determining the estimated annual effective tax rate, the Company analyzes various factors, including but not limited to, forecasts of projected annual earnings, taxing jurisdictions in which the pretax income and/or pretax losses will be generated, and available tax planning strategies.
During the three and ninesix months ended SeptemberJune 30, 2022, the effective income tax rate was (2.0)% and (1.4)%, respectively. During the three and six months ended June 30, 2021, the effective income tax rate was (17.4)%59.3% and (19.9)%, respectively. During the three and nine months ended September 30, 2020, the effective income tax rate was 5.9% and (0.5)(20.4)%, respectively. The differences in the effective tax rate compared to the statutory tax rate isare attributable to the valuation allowance recorded in the U.S. and several foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses, and therefore, are excluded from the estimated effective tax rate.
The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance is necessary. Full valuation allowances that are recorded for deferred tax assets in the U.S. and certain foreign jurisdictions will be maintained until sufficient positive evidence exists to reduce or eliminate them. The factors considered by management in its determination of the probability of the realization of the deferred tax assets include, but are not limited to, recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. The Company has recently experienced pre-tax losses. As of SeptemberJune 30, 2021,2022, the Company believes that it is more likely than not that the recorded deferred tax assets will be realized.
16.
HORIZON GLOBAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Other (Expense) Income,Expense, Net
Other (expense) income,expense, net consists of the following components:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Foreign currency (loss) gain | Foreign currency (loss) gain | | $ | (1,370) | | | $ | 1,080 | | | $ | (3,020) | | | $ | (670) | | Foreign currency (loss) gain | | $ | (2,810) | | | $ | 460 | | | $ | (4,160) | | | $ | (1,650) | |
| Customer pay discounts | | (280) | | | (420) | | | (780) | | | (960) | | |
| Loss on sale of business | | — | | | — | | | (2,230) | | | — | | |
| Customer early pay discounts | | Customer early pay discounts | | (410) | | | (260) | | | (660) | | | (500) | |
| Net loss on disposition of business | | Net loss on disposition of business | | — | | | (2,230) | | | (3,090) | | | (2,230) | |
| Series B commitment fee | | Series B commitment fee | | — | | | — | | | (1,000) | | | — | |
| Other, net | Other, net | | (70) | | | 30 | | | 90 | | | 200 | | Other, net | | (140) | | | 40 | | | 60 | | | 160 | |
| Total | Total | | $ | (1,720) | | | $ | 690 | | | $ | (5,940) | | | $ | (1,430) | | Total | | $ | (3,360) | | | $ | (1,990) | | | $ | (8,850) | | | $ | (4,220) | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading “Forward-Looking Statements,” at the beginning of this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
You should read the following discussion together with the Company’s reports on file with the Securities and Exchange Commission, as well asincluding our Annual Report on Form 10-K for the twelve months ended December 31, 20202021 (See Item 1A. Risk Factors).
Overview
Headquartered in Plymouth, Michigan, Horizon Global Corporation and its consolidated subsidiaries (“Horizon” “Horizon Global,” “we,” “our,” or the “Company”) are a leading designer, manufacturer and distributor of a wide variety of high-quality, custom-engineered towing, trailering, cargo management and other related accessory products primarily in the North American, European and African markets, primarily servicing the aftermarket, automotive original equipment manufacturers (“automotive OEMs”) and automotive original equipment servicers (“automotive OESs”) (collectively, “OEs”), retail, e-commerce and industrial channels, supporting our customers generally through a regional service and delivery model.
Critical factors affecting our ability to succeed include:
•Our ability to realize the expected future economic benefits resulting from the changes made to our manufacturing operations, distribution footprint and management team in recent years, including the implementation of operational improvement initiatives, implemented in 2019-2020, which are continuously ongoing to support margin expansion;
•Our ability to continue to manage our liquidity, including continuing to service our debt obligations and comply with the applicable financial covenants thereto, especially given our recent debt refinancing activities and capital structure alignment to support business growth and the Company’sour long-term strategic plan;
•Our ability to quickly and cost-effectively introduce new products to our customers and end-user market with a resulting streamlined customer service model and improved operating margins;
•Our ability to continue to successfully launch new products and customer programs to expand or realign our geographic coverage or distribution channels and realize desired operating efficiencies and product line or customer content penetration;
•Our ability to efficiently manage our cost structure more efficiently via global supply base management, internal sourcing and/or purchasing of materials, freight and logistics management, selective outsourcing of support functions, working capital management and a global approach to leverage our administrative functions; and
•Our ability to manage liquidity and other economic and business uncertainties related to the COVID-19 pandemic that may result in future business disruption, including any mandated operating restrictions such as temporary facility closures.inflation and deflation rates, interest rate volatility, the ongoing global semiconductor shortage, transportation and other logistic constraints and the COVID-19 pandemic.
If we are unable to do any of the foregoing successfully, our financial condition and results of operations could be materially and adversely impacted.
Horizon Global reports its business in two operating segments: Horizon Americas and Horizon Europe-Africa. See Note 14,13, Segment Information, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q for further description of the Company’s operating segments.
Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and are included in cost of sales in our condensed consolidated statements of operations. Other shipping and handling expenses, which primarily relate to Horizon Americas’ distribution network, are included in selling, general and administrative expenses in our condensed consolidated statements of operations.
Supplemental Analysis and Segment Information
Non-GAAP Financial Measures
The Company’s management utilizes Adjusted EBITDA as the key measure of company and segment performance and for planning and forecasting purposes, as management believes this measure is most reflective of the operational profitability or loss of the Company and its operating segments and provides management and investors with information to evaluate the operating performance of its business and is representative of its performance used to measure certain of its financial covenants, further discussed in the Liquidity and Capital Resources section below. Adjusted EBITDA should not be considered a substitute for results prepared in accordance with U.S. GAAP and should not be considered an alternative to net income attributable to Horizon Global, which is the most directly comparable financial measure to Adjusted EBITDA that is prepared in accordance with U.S. GAAP. Adjusted EBITDA, as determined and measured by Horizon Global, should also not be compared to similarly titled measures reported by other companies. The Company also uses operating profit (loss) to measure stand-alone segment performance.
Adjusted EBITDA is defined as net income (loss) attributable to Horizon Global before interest expense, income taxes, depreciation and amortization, and before certain items, as applicable, such as severance, restructuring, relocation and related business disruption costs, gains (losses) on extinguishment of debt, extinguishment, impairment of goodwill and other intangibles, non-cash stock compensation, certain product liability and litigation claims, acquisition and integration costs, gains (losses) on business divestitures and other assets, debt issuance costs, board transition support and non-cash unrealized foreign currency remeasurement costs.
The following table summarizes Adjusted EBITDA for our operating segments for the three months ended SeptemberJune 30, 2021:2022 is as follows:
| | | Three Months Ended September 30, 2021 | | Three Months Ended June 30, 2022 |
| | Horizon Americas | | Horizon Europe-Africa | | Corporate | | Consolidated | | Horizon Americas | | Horizon Europe-Africa | | Corporate | | Consolidated |
| | (dollars in thousands) | | (dollars in thousands) |
| Net loss attributable to Horizon Global | Net loss attributable to Horizon Global | | $ | (2,470) | | Net loss attributable to Horizon Global | | $ | (22,200) | |
| Net loss attributable to noncontrolling interest | Net loss attributable to noncontrolling interest | | (300) | | Net loss attributable to noncontrolling interest | | (230) | |
| Net loss | Net loss | | $ | (2,770) | | Net loss | | $ | (22,430) | |
| Interest expense | Interest expense | | 6,970 | | Interest expense | | 8,310 | |
| Income tax expense | Income tax expense | | 410 | | Income tax expense | | 450 | |
| Depreciation and amortization | Depreciation and amortization | | 5,210 | | Depreciation and amortization | | 4,320 | |
| EBITDA | EBITDA | | $ | 14,050 | | | $ | 2,030 | | | $ | (6,260) | | | $ | 9,820 | | EBITDA | | $ | 3,190 | | | $ | (4,340) | | | $ | (8,200) | | | $ | (9,350) | |
| Net loss attributable to noncontrolling interest | Net loss attributable to noncontrolling interest | | — | | | 300 | | | — | | | 300 | | Net loss attributable to noncontrolling interest | | — | | | 230 | | | — | | | 230 | |
| Severance | Severance | | 50 | | | — | | | — | | | 50 | | Severance | | — | | | 50 | | | 480 | | | 530 | |
| Restructuring, relocation and related business disruption costs | Restructuring, relocation and related business disruption costs | | 60 | | | 30 | | | 10 | | | 100 | | Restructuring, relocation and related business disruption costs | | 320 | | | 20 | | | 40 | | | 380 | |
| Non-cash stock compensation | Non-cash stock compensation | | — | | | — | | | 880 | | | 880 | | Non-cash stock compensation | | — | | | — | | | 800 | | | 800 | |
| Loss on business divestitures and other assets | | 300 | | | 10 | | | 10 | | | 320 | | |
| Loss (gain) on business divestitures and other assets | | Loss (gain) on business divestitures and other assets | | 440 | | | (20) | | | — | | | 420 | |
| Debt issuance costs | Debt issuance costs | | — | | | 70 | | | 100 | | | 170 | | Debt issuance costs | | — | | | — | | | 290 | | | 290 | |
| Unrealized foreign currency remeasurement costs | Unrealized foreign currency remeasurement costs | | (10) | | | 950 | | | 400 | | | 1,340 | | Unrealized foreign currency remeasurement costs | | (550) | | | 2,550 | | | 850 | | | 2,850 | |
| Adjusted EBITDA | Adjusted EBITDA | | $ | 14,450 | | | $ | 3,390 | | | $ | (4,860) | | | $ | 12,980 | | Adjusted EBITDA | | $ | 3,400 | | | $ | (1,510) | | | $ | (5,740) | | | $ | (3,850) | |
The following table summarizes
Adjusted EBITDA for our operating segments for the three months ended SeptemberJune 30, 2020:2021 is as follows:
| | | Three Months Ended September 30, 2020 | | Three Months Ended June 30, 2021 |
| | Horizon Americas | | Horizon Europe-Africa | | Corporate | | Consolidated | | Horizon Americas | | Horizon Europe-Africa | | Corporate | | Consolidated |
| | (dollars in thousands) | | (dollars in thousands) |
| Net income attributable to Horizon Global | Net income attributable to Horizon Global | | $ | 1,930 | | Net income attributable to Horizon Global | | $ | 1,290 | |
| Net loss attributable to noncontrolling interest | Net loss attributable to noncontrolling interest | | (340) | | Net loss attributable to noncontrolling interest | | (330) | |
| Net income | Net income | | $ | 1,590 | | Net income | | $ | 960 | |
| Interest expense | Interest expense | | 7,560 | | Interest expense | | 6,980 | |
| Income tax expense | Income tax expense | | 100 | | Income tax expense | | 1,400 | |
| Depreciation and amortization | Depreciation and amortization | | 5,620 | | Depreciation and amortization | | 5,220 | |
| EBITDA | EBITDA | | $ | 13,870 | | | $ | 7,490 | | | $ | (6,490) | | | $ | 14,870 | | EBITDA | | $ | 15,980 | | | $ | 5,040 | | | $ | (6,460) | | | $ | 14,560 | |
| Net loss attributable to noncontrolling interest | Net loss attributable to noncontrolling interest | | — | | | 340 | | | — | | | 340 | | Net loss attributable to noncontrolling interest | | — | | | 330 | | | — | | | 330 | |
| Severance | | — | | | (170) | | | — | | | (170) | | |
| Restructuring, relocation and related business disruption costs | Restructuring, relocation and related business disruption costs | | 250 | | | (20) | | | 150 | | | 380 | | Restructuring, relocation and related business disruption costs | | 20 | | | 90 | | | (40) | | | 70 | |
| Non-cash stock compensation | Non-cash stock compensation | | — | | | — | | | 870 | | | 870 | | Non-cash stock compensation | | — | | | — | | | 850 | | | 850 | |
| Loss (gain) on business divestitures and other assets | | 420 | | | — | | | (20) | | | 400 | | |
| Loss (income) on business divestitures and other assets | | Loss (income) on business divestitures and other assets | | 2,480 | | | (10) | | | — | | | 2,470 | |
| Debt issuance costs | Debt issuance costs | | — | | | — | | | 530 | | | 530 | | Debt issuance costs | | — | | | — | | | 190 | | | 190 | |
| Unrealized foreign currency remeasurement costs | Unrealized foreign currency remeasurement costs | | 980 | | | (1,580) | | | (500) | | | (1,100) | | Unrealized foreign currency remeasurement costs | | — | | | (340) | | | (110) | | | (450) | |
| Adjusted EBITDA | Adjusted EBITDA | | $ | 15,520 | | | $ | 6,060 | | | $ | (5,460) | | | $ | 16,120 | | Adjusted EBITDA | | $ | 18,480 | | | $ | 5,110 | | | $ | (5,570) | | | $ | 18,020 | |
Segment and Other Supplemental Information
FinancialA summary of operating segment and other supplemental financial information for our operating segments for the three months ended SeptemberJune 30, 20212022 and 20202021 is as follows:
| | | Three Months Ended September 30, | | Change | | Constant Currency Change | | Three Months Ended June 30, | | Change | | Constant Currency Change |
| | 2021 | | As a Percentage of Net Sales | | 2020 | | As a Percentage of Net Sales | | $ | | % | | $ | | % | | 2022 | | As a Percentage of Net Sales | | 2021 | | As a Percentage of Net Sales | | $ | | % | | $ | | % |
| | (dollars in thousands) | | (dollars in thousands) |
| Net Sales | Net Sales | | Net Sales | |
| Horizon Americas | Horizon Americas | | $ | 115,850 | | | 58.9 | % | | $ | 119,140 | | | 59.1 | % | | $ | (3,290) | | | (2.8 | %) | | $ | (3,290) | | | (2.8 | %) | Horizon Americas | | $ | 110,920 | | | 61.2 | % | | $ | 128,380 | | | 57.8 | % | | $ | (17,460) | | | (13.6 | %) | | $ | (17,470) | | | (13.6 | %) |
| Horizon Europe-Africa | Horizon Europe-Africa | | 80,690 | | | 41.1 | % | | 82,490 | | | 40.9 | % | | (1,800) | | | (2.2 | %) | | (2,930) | | | (3.6 | %) | Horizon Europe-Africa | | 70,300 | | | 38.8 | % | | 93,740 | | | 42.2 | % | | (23,440) | | | (25.0 | %) | | (14,770) | | | (15.8 | %) |
| Total | Total | | $ | 196,540 | | | 100.0 | % | | $ | 201,630 | | | 100.0 | % | | $ | (5,090) | | | (2.5 | %) | | $ | (6,220) | | | (3.1 | %) | Total | | $ | 181,220 | | | 100.0 | % | | $ | 222,120 | | | 100.0 | % | | $ | (40,900) | | | (18.4 | %) | | $ | (32,240) | | | (14.5 | %) |
| Gross Profit | Gross Profit | | | | | | | | | | | | | | | | | Gross Profit | | | | | | | | | | | | | | | | |
| Horizon Americas | Horizon Americas | | $ | 29,310 | | | 25.3 | % | | $ | 32,960 | | | 27.7 | % | | $ | (3,650) | | | (11.1 | %) | | $ | (3,800) | | | (11.5 | %) | Horizon Americas | | $ | 17,220 | | | 15.5 | % | | $ | 35,080 | | | 27.3 | % | | $ | (17,860) | | | (50.9 | %) | | $ | (17,880) | | | (51.0 | %) |
| Horizon Europe-Africa | Horizon Europe-Africa | | 9,450 | | | 11.7 | % | | 10,410 | | | 12.6 | % | | (960) | | | (9.2 | %) | | (930) | | | (8.9 | %) | Horizon Europe-Africa | | 3,500 | | | 5.0 | % | | 12,210 | | | 13.0 | % | | (8,710) | | | (71.3 | %) | | (8,240) | | | (67.5 | %) |
| Total | Total | | $ | 38,760 | | | 19.7 | % | | $ | 43,370 | | | 21.5 | % | | $ | (4,610) | | | (10.6 | %) | | $ | (4,730) | | | (10.9 | %) | Total | | $ | 20,720 | | | 11.4 | % | | $ | 47,290 | | | 21.3 | % | | $ | (26,570) | | | (56.2 | %) | | $ | (26,120) | | | (55.2 | %) |
| Selling, General and Administrative Expenses | Selling, General and Administrative Expenses | | | | | | | | | | | | | | | | | Selling, General and Administrative Expenses | | | | | | | | | | | | | | | | |
| Horizon Americas | Horizon Americas | | $ | 16,910 | | | 14.6 | % | | $ | 19,780 | | | 16.6 | % | | $ | (2,870) | | | (14.5 | %) | | $ | (2,970) | | | (15.0 | %) | Horizon Americas | | $ | 15,830 | | | 14.3 | % | | $ | 18,320 | | | 14.3 | % | | $ | (2,490) | | | (13.6 | %) | | $ | (2,510) | | | (13.7 | %) |
| Horizon Europe-Africa | Horizon Europe-Africa | | 9,600 | | | 11.9 | % | | 7,960 | | | 9.6 | % | | 1,640 | | | 20.6 | % | | 1,460 | | | 18.3 | % | Horizon Europe-Africa | | 7,750 | | | 11.0 | % | | 10,970 | | | 11.7 | % | | (3,220) | | | (29.4 | %) | | (2,270) | | | (20.7 | %) |
| Corporate | Corporate | | 5,920 | | | N/A | | 7,070 | | | N/A | | (1,150) | | | (16.3 | %) | | (1,150) | | | (16.3 | %) | Corporate | | 7,450 | | | N/A | | 6,670 | | | N/A | | 780 | | | 11.7 | % | | 780 | | | 11.7 | % |
| Total | Total | | $ | 32,430 | | | 16.5 | % | | $ | 34,810 | | | 17.3 | % | | $ | (2,380) | | | (6.8 | %) | | $ | (2,660) | | | (7.6 | %) | Total | | $ | 31,030 | | | 17.1 | % | | $ | 35,960 | | | 16.2 | % | | $ | (4,930) | | | (13.7 | %) | | $ | (4,000) | | | (11.1 | %) |
| Operating Profit (Loss) | Operating Profit (Loss) | | | | | | | | | | | | | | | | | Operating Profit (Loss) | | | | | | | | | | | | | | | | |
| Horizon Americas | Horizon Americas | | $ | 12,400 | | | 10.7 | % | | $ | 13,170 | | | 11.1 | % | | $ | (770) | | | (5.8 | %) | | $ | (830) | | | (6.3 | %) | Horizon Americas | | $ | 1,390 | | | 1.3 | % | | $ | 16,760 | | | 13.1 | % | | $ | (15,370) | | | (91.7 | %) | | $ | (15,370) | | | (91.7 | %) |
| Horizon Europe-Africa | Horizon Europe-Africa | | (150) | | | (0.2) | % | | 2,440 | | | 3.0 | % | | (2,590) | | | (106.1 | %) | | (2,390) | | | (98.0 | %) | Horizon Europe-Africa | | (4,250) | | | (6.0) | % | | 1,240 | | | 1.3 | % | | (5,490) | | | (442.7 | %) | | (5,970) | | | (481.5 | %) |
| Corporate | Corporate | | (5,920) | | | N/A | | (7,050) | | | N/A | | 1,130 | | | 16.0 | % | | 1,130 | | | 16.0 | % | Corporate | | (7,450) | | | N/A | | (6,670) | | | N/A | | (780) | | | (11.7 | %) | | (780) | | | (11.7 | %) |
| Total | Total | | $ | 6,330 | | | 3.2 | % | | $ | 8,560 | | | 4.2 | % | | $ | (2,230) | | | (26.1 | %) | | $ | (2,090) | | | (24.4 | %) | Total | | $ | (10,310) | | | (5.7) | % | | $ | 11,330 | | | 5.1 | % | | $ | (21,640) | | | (191.0 | %) | | $ | (22,120) | | | (195.2 | %) |
| Capital Expenditures | Capital Expenditures | | | | | | | | | | | | | | | | | Capital Expenditures | | | | | | | | | | | | | | | | |
| Horizon Americas | Horizon Americas | | $ | 2,170 | | | 1.9 | % | | $ | 1,180 | | | 1.0 | % | | $ | 990 | | | 83.9 | % | | $ | 990 | | | 83.9 | % | Horizon Americas | | $ | 510 | | | 0.5 | % | | $ | 2,880 | | | 2.2 | % | | $ | (2,370) | | | (82.3 | %) | | $ | (2,370) | | | (82.3 | %) |
| Horizon Europe-Africa | Horizon Europe-Africa | | 2,620 | | | 3.2 | % | | 1,460 | | | 1.8 | % | | 1,160 | | | 79.5 | % | | 1,510 | | | 103.4 | % | Horizon Europe-Africa | | 3,420 | | | 4.9 | % | | 3,700 | | | 3.9 | % | | (280) | | | (7.6 | %) | | 540 | | | 14.6 | % |
| Corporate | Corporate | | — | | | N/A | | — | | | N/A | | — | | | — | % | | — | | | — | % | Corporate | | — | | | N/A | | — | | | N/A | | — | | | — | % | | — | | | — | % |
| Total | Total | | $ | 4,790 | | | 2.4 | % | | $ | 2,640 | | | 1.3 | % | | $ | 2,150 | | | 81.4 | % | | $ | 2,500 | | | 94.7 | % | Total | | $ | 3,930 | | | 2.2 | % | | $ | 6,580 | | | 3.0 | % | | $ | (2,650) | | | (40.3 | %) | | $ | (1,830) | | | (27.8 | %) |
| Depreciation of Property and Equipment and Amortization of Intangibles | Depreciation of Property and Equipment and Amortization of Intangibles | | | | | | | | | | | | | | | | | Depreciation of Property and Equipment and Amortization of Intangibles | | | | | | | | | | | | | | | | |
| Horizon Americas | Horizon Americas | | $ | 1,990 | | | 1.7 | % | | $ | 2,100 | | | 1.8 | % | | $ | (110) | | | (5.2 | %) | | $ | (110) | | | (5.2 | %) | Horizon Americas | | $ | 1,950 | | | 1.8 | % | | $ | 1,780 | | | 1.4 | % | | $ | 170 | | | 9.6 | % | | $ | 170 | | | 9.6 | % |
| Horizon Europe-Africa | Horizon Europe-Africa | | 3,180 | | | 3.9 | % | | 3,470 | | | 4.2 | % | | (290) | | | (8.4 | %) | | (340) | | | (9.8 | %) | Horizon Europe-Africa | | 2,350 | | | 3.3 | % | | 3,390 | | | 3.6 | % | | (1,040) | | | (30.7 | %) | | (770) | | | (22.7 | %) |
| Corporate | Corporate | | 40 | | | N/A | | 50 | | | N/A | | (10) | | | (20.0 | %) | | (10) | | | (20.0 | %) | Corporate | | 20 | | | N/A | | 50 | | | N/A | | (30) | | | (60.0 | %) | | (30) | | | (60.0 | %) |
| Total | Total | | $ | 5,210 | | | 2.7 | % | | $ | 5,620 | | | 2.8 | % | | $ | (410) | | | (7.3 | %) | | $ | (460) | | | (8.2 | %) | Total | | $ | 4,320 | | | 2.4 | % | | $ | 5,220 | | | 2.4 | % | | $ | (900) | | | (17.2 | %) | | $ | (630) | | | (12.1 | %) |
| Adjusted EBITDA | Adjusted EBITDA | | | | | | | | | | | | | | | | | Adjusted EBITDA | | | | | | | | | | | | | | | | |
| Horizon Americas | Horizon Americas | | $ | 14,450 | | | 12.5 | % | | $ | 15,520 | | | 13.0 | % | | $ | (1,070) | | | (6.9 | %) | | N/A | | N/A | Horizon Americas | | $ | 3,400 | | | 3.1 | % | | $ | 18,480 | | | 14.4 | % | | $ | (15,080) | | | (81.6 | %) | | N/A | | N/A |
| Horizon Europe-Africa | Horizon Europe-Africa | | 3,390 | | | 4.2 | % | | 6,060 | | | 7.3 | % | | (2,670) | | | (44.1 | %) | | N/A | | N/A | Horizon Europe-Africa | | (1,510) | | | (2.1) | % | | 5,110 | | | 5.5 | % | | (6,620) | | | (129.5 | %) | | N/A | | N/A |
| Corporate | Corporate | | (4,860) | | | N/A | | (5,460) | | | N/A | | 600 | | | 11.0 | % | | N/A | | N/A | Corporate | | (5,740) | | | N/A | | (5,570) | | | N/A | | (170) | | | (3.1 | %) | | N/A | | N/A |
| Total | Total | | $ | 12,980 | | | 6.6 | % | | $ | 16,120 | | | 8.0 | % | | $ | (3,140) | | | (19.5 | %) | | N/A | | N/A | Total | | $ | (3,850) | | | (2.1) | % | | $ | 18,020 | | | 8.1 | % | | $ | (21,870) | | | (121.4 | %) | | N/A | | N/A |
Results of Operations
Three Months Ended SeptemberJune 30, 20212022 Compared with Three Months Ended SeptemberJune 30, 20202021
Consolidated net sales decreased $5.0$40.9 million, or 2.5%18.4%, to $196.5$181.2 million during the three months ended SeptemberJune 30, 2021,2022, as compared to $201.6$222.1 million during the three months ended SeptemberJune 30, 2020.2021. Net sales for Horizon Americas decreased $3.2$17.5 million, driven primarily by a decrease inlower sales volumes in the aftermarket OE and retail sales channels,channel, partially offset by customer pricing recovery initiatives driven byput in place in response to commodity and input cost increases. Net sales for Horizon Europe-Africa decreased $1.8$23.4 million, driven primarily by a decrease inlower sales volumes in the aftermarket and automotive OEMOE sales channels and unfavorable currency translation, partially offset by higher sales volumes in the automotive OES and e-commerce sales channels. The decrease was also partially offset bycustomer pricing recovery initiatives driven byput in place in response to commodity and input cost increases and favorable currency translation.increases.
Gross profit margin (gross profit as a percentage of net sales) was 19.7%11.4% and 21.5%21.3% during the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. The decline in gross profit margin is primarily due to lower net sales in Horizon Americas and Horizon Europe-Africa as detailed above.above, coupled with unfavorable cost performance, primarily attributable to unfavorable material, supply chain and other manufacturing input costs associated with global macroeconomic factors experienced during the second quarter of 2022.
Selling, general and administrative (“SG&A”) expenses decreased $2.4$4.9 million, primarily attributable to $2.0 million lower personnel and other variable compensation costs combined across the Company.Company and favorable currency translation in Horizon Europe-Africa.
Operating margin (operating (loss) profit (loss) as a percentage of net sales) was 3.2%(5.7)% and 4.2%5.1% during the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. Operating profit decreased $2.3declined $21.6 million to $6.3an operating loss of $10.3 million during the three months ended SeptemberJune 30, 2021, from2022, as compared to an operating profit of $8.6$11.3 million during the three months ended SeptemberJune 30, 2020.2021. The declinechanges in operating profit and operating margin were primarily due to the operational resultsgross profit performance decline detailed above.
Other (expense) income,expense, net was $(1.7)increased $1.4 million of expenseto $3.4 million during the three months ended SeptemberJune 30, 2021,2022, as compared to $0.7$2.0 million of income during the three months ended SeptemberJune 30, 2020. The $2.4 million change is2021, primarily attributable to $(1.4)$3.3 million of higher foreign currency loss during the three months ended SeptemberJune 30, 20212022, as compared to $1.1 million of foreign currency gainthe three months ended June 30, 2021. The loss during the three months ended SeptemberJune 30, 2020.2021, was primarily attributable to the $2.2 million loss on the sale of the Company’s Brazil business, which did not recur in 2022.
Interest expense decreased $0.6increased $1.3 million to $8.3 million during the three months ended June 30, 2022, as compared to $7.0 million during the three months ended SeptemberJune 30, 2021, as compared to $7.6 million during the three months ended September 30, 2020, primarily as a result of the Company’s amendment to its Senior Term Loan Credit Agreement, as defined below, in February 2021 refinancing,2022, which resulted in a new term loan agreementadditional borrowings and replaced the Company’s existing term loan agreement. The new term loan included a lower interest rate and removed paid-in-kind interest, resulting in lowerincreased interest expense for the three months ended SeptemberJune 30, 2021,2022, as compared to the three months ended SeptemberJune 30, 2020.2021. Interest expense also increased as a result of additional borrowings on the Company’s Revolving Credit Facility, as defined below. Refer to Note 8,7, Long-term Debt, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information of the Company’s February 2021 refinancing.long-term debt.
The effective income tax rate for the three months ended SeptemberJune 30, 2022 and 2021 and 2020 was (17.4)(2.0)% and 5.9%59.3%, respectively. The increase in tax expense and related impacts on the effective income tax rate for the three months ended September 30, 2021 is attributable to projected jurisdictional income mix in jurisdictions not in a valuation allowance, coupled with utilization limitations on usage of U.S. tax attributes. The difference in the effective tax rate compared to the statutory tax rate for both periods is attributable to the Company’s valuation allowance recorded in the U.S. and severalcertain foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses, and therefore, are excluded from the estimated effective tax rate.
Net (loss) from continuing operationsloss increased $4.4$23.4 million to $(2.8)$22.4 million during the three months ended SeptemberJune 30, 2021,2022, compared to net income from continuing operations of $1.6$1.0 million during the three months ended SeptemberJune 30, 2020.2021. The change in net (loss) income from continuing operationsloss was attributable to the operational results detailed above.
See below for a discussion of operating results by segment.
Horizon Americas
Net sales by sales channel, in thousands, for Horizon Americas are as follows:
| | | Three Months Ended September 30, | | Change | | Three Months Ended June 30, | | Change |
| | 2021 | | 2020 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Net Sales | Net Sales | | | | | | | | | Net Sales | | | | | | | | |
| Aftermarket | Aftermarket | | $ | 35,390 | | | $ | 35,390 | | | $ | — | | | — | % | Aftermarket | | $ | 23,680 | | | $ | 40,560 | | | $ | (16,880) | | | (41.6) | % |
| Automotive OEM | Automotive OEM | | 24,690 | | | 24,010 | | | 680 | | | 2.8 | % | Automotive OEM | | 27,040 | | | 22,650 | | | 4,390 | | | 19.4 | % |
| Automotive OES | Automotive OES | | 3,570 | | | 2,980 | | | 590 | | | 19.8 | % | Automotive OES | | 4,420 | | | 4,240 | | | 180 | | | 4.2 | % |
| Retail | Retail | | 26,460 | | | 34,290 | | | (7,830) | | | (22.8) | % | Retail | | 27,710 | | | 32,610 | | | (4,900) | | | (15.0) | % |
| E-commerce | E-commerce | | 16,970 | | | 15,240 | | | 1,730 | | | 11.4 | % | E-commerce | | 17,980 | | | 19,730 | | | (1,750) | | | (8.9) | % |
| Industrial | Industrial | | 8,770 | | | 7,230 | | | 1,540 | | | 21.3 | % | Industrial | | 10,090 | | | 8,590 | | | 1,500 | | | 17.5 | % |
| | Total | Total | | $ | 115,850 | | | $ | 119,140 | | | $ | (3,290) | | | (2.8) | % | Total | | $ | 110,920 | | | $ | 128,380 | | | $ | (17,460) | | | (13.6) | % |
Net sales decreased $3.2$17.5 million, or 2.8%13.6%, to $115.9$110.9 million during the three months ended SeptemberJune 30, 2021,2022, as compared to $119.1$128.4 million during the three months ended SeptemberJune 30, 2020,2021, primarily attributable to lower sales volumes in the aftermarket OE and retail sales channels, as well as $1.3 million impact attributable to the Company’s sale of its Brazil business in the second quarter of 2021.channels. The decrease in net sales was partially offset by $13.0$16.9 million of customer pricing recovery initiatives implemented,recoveries, primarily in the aftermarket, OE, retail and e-commerce sales channels, to recover increased material and input costs. The decrease was also partially offset by a $2.5$1.9 million decreasereduction in sales returns and allowances.
Horizon Americas’ gross profit decreased $3.7$17.9 million, or 11.1%50.9%, to $29.3$17.2 million, or 25.3%15.5% of net sales, during the three months ended SeptemberJune 30, 2021,2022, as compared to $33.0$35.1 million, or 27.7%27.3% of net sales, during the three months ended SeptemberJune 30, 2020.2021. The decrease in gross profit and gross profit margin reflects the changes in net sales detailed above, inclusive of a significant mix shift from higher margin sales channels to lower margin sales channels, and is net of customer pricing recoveries discussed above. Gross profit and gross profit margin were also negatively impacted in the second quarter of 2022 by increased material, supply chain and other manufacturing input costs attributable to significant commodity and logistics cost increases in the Company’s supply chain due to global macroeconomic factors. These global macroeconomic factors impacted business performance and were not able to be fully passed through to our customers during the second quarter of 2022, given there is generally a delay in such recoveries due to market pressures and restrictions within certain customer contracts.
SG&A expenses decreased $2.5 million to $15.8 million, or 14.3% of net sales, during the three months ended June 30, 2022, as compared to $18.3 million, or 14.3% of net sales, during the three months ended June 30, 2021. The decrease in SG&A expenses is primarily attributable to the following:
–$1.2 million lower personnel and other variable compensation costs; and
–$0.4 million lower outside professional fees and other administrative costs.
Horizon Americas’ operating profit decreased $15.4 million to $1.4 million, or 1.3% of net sales, during the three months ended June 30, 2022, as compared to $16.8 million, or 13.1% of net sales, during the three months ended June 30, 2021. The decline in operating profit and operating margin were primarily due to the operational results detailed above.
Horizon Americas’ Adjusted EBITDA was $3.4 million during the three months ended June 30, 2022, as compared to Adjusted EBITDA of $18.5 million during the three months ended June 30, 2021. Adjusted EBITDA declined due to the operational results detailed above.
Horizon Europe-Africa
Net sales by sales channel, in thousands, for Horizon Europe-Africa are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Change |
| | 2022 | | 2021 | | $ | | % |
| Net Sales | | | | | | | | |
| Aftermarket | | $ | 17,190 | | | $ | 26,130 | | | $ | (8,940) | | | (34.2) | % |
| Automotive OEM | | 36,280 | | | 44,190 | | | (7,910) | | | (17.9) | % |
| Automotive OES | | 13,430 | | | 19,970 | | | (6,540) | | | (32.7) | % |
| E-commerce | | 2,930 | | | 1,960 | | | 970 | | | 49.5 | % |
| Industrial | | 240 | | | 630 | | | (390) | | | (61.9) | % |
| Other | | 230 | | | 860 | | | (630) | | | (73.3) | % |
| Total | | $ | 70,300 | | | $ | 93,740 | | | $ | (23,440) | | | (25.0) | % |
Net sales decreased $23.4 million, or 25.0%, to $70.3 million during the three months ended June 30, 2022, as compared to $93.7 million, during the three months ended June 30, 2021, primarily attributable to lower sales volumes in the aftermarket and OE sales channels. The decrease includes $8.7 million of unfavorable currency translation. The decrease was partially offset by $8.1 million of customer pricing recoveries, primarily in the aftermarket and OE sales channels, to recover increased material and input costs.
Horizon Europe-Africa’s gross profit decreased $8.7 million, or 71.3%, to $3.5 million, or 5.0% of net sales, during the three months ended June 30, 2022, as compared to $12.2 million, or 13.0% of net sales, during the three months ended June 30, 2021. The decrease in gross profit and gross profit margin reflects the changes in net sales detailed above, coupled with the unfavorable impact of increased material, supply chain and other manufacturing input costs, net of customer pricing recoveries. Gross profit and gross profit margin were also negatively impacted in the second quarter of 2022 by the inability to flex costs efficiently resulting from OEM customer production schedule changes. The input cost increases were not able to be fully passed through to our customers during the second quarter of 2022, given there is generally a delay in such recoveries due to market pressures and restrictions within certain customer contracts.
SG&A expenses decreased $3.2 million to $7.8 million, or 11.0% of net sales, during the three months ended June 30, 2022, as compared to $11.0 million, or 11.7% of net sales, during the three months ended June 30, 2021. The decrease in SG&A expenses is primarily attributable to the following:
–$1.0 million of favorable currency translation; and
–$0.8 million of lower outside professional fees and other administrative costs.
Horizon Europe-Africa’s operating profit decreased $5.5 million to an operating loss of $4.3 million, or (6.0)% of net sales, during the three months ended June 30, 2022, as compared to an operating profit of $1.2 million, or 1.3% of net sales, during the three months ended June 30, 2021. The decline in operating profit and operating margin were primarily due to the operational results detailed above.
Horizon Europe-Africa’s Adjusted EBITDA was $(1.5) million during the three months ended June 30, 2022, as compared to Adjusted EBITDA of $5.1 million during the three months ended June 30, 2021. Adjusted EBITDA declined due to the operational results detailed above.
Corporate Expenses
Corporate expenses included in operating loss increased $0.8 million to $7.5 million during the three months ended June 30, 2022, as compared to $6.7 million during the three months ended June 30, 2021. The increase was primarily attributable to $0.5 million of additional severance costs in the three months ended June 30, 2022.
Corporate Adjusted EBITDA was $(5.7) million during the three months ended June 30, 2022, as compared to Adjusted EBITDA of $(5.6) million during the three months ended June 30, 2021. The change in Adjusted EBITDA was driven by insignificant changes to Corporate expenses.
The following table summarizes Adjusted EBITDA for our operating segments for the six months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Horizon Americas | | Horizon Europe-Africa | | Corporate | | Consolidated |
| | (dollars in thousands) |
| Net loss attributable to Horizon Global | | | | | | | | $ | (48,880) | |
| Net loss attributable to noncontrolling interest | | | | | | | | (500) | |
| Net loss | | | | | | | | $ | (49,380) | |
| Interest expense | | | | | | | | 15,980 | |
| Income tax expense | | | | | | | | 680 | |
| Depreciation and amortization | | | | | | | | 8,940 | |
| EBITDA | | $ | 360 | | | $ | (3,730) | | | $ | (20,410) | | | $ | (23,780) | |
| Net loss attributable to noncontrolling interest | | — | | | 500 | | | — | | | 500 | |
| Severance | | — | | | 50 | | | 460 | | | 510 | |
| Restructuring, relocation and related business disruption costs | | 380 | | | 40 | | | 20 | | | 440 | |
| Non-cash stock compensation | | — | | | — | | | 2,050 | | | 2,050 | |
| Loss (gain) on business divestitures and other assets | | 690 | | | (80) | | | 3,160 | | | 3,770 | |
| Debt issuance costs | | — | | | — | | | 1,860 | | | 1,860 | |
| Unrealized foreign currency remeasurement costs | | (280) | | | 3,200 | | | 1,260 | | | 4,180 | |
| Adjusted EBITDA | | $ | 1,150 | | | $ | (20) | | | $ | (11,600) | | | $ | (10,470) | |
The following table summarizes Adjusted EBITDA for our operating segments for the six months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Horizon Americas | | Horizon Europe-Africa | | Corporate | | Consolidated |
| | (dollars in thousands) |
| Net loss attributable to Horizon Global | | | | | | | | $ | (13,520) | |
| Net loss attributable to noncontrolling interest | | | | | | | | (670) | |
| Net loss | | | | | | | | $ | (14,190) | |
| Interest expense | | | | | | | | 14,030 | |
| Income tax expense | | | | | | | | 2,400 | |
| Depreciation and amortization | | | | | | | | 10,720 | |
| EBITDA | | $ | 29,180 | | | $ | 8,830 | | | $ | (25,050) | | | $ | 12,960 | |
| Net loss attributable to noncontrolling interest | | — | | | 670 | | | — | | | 670 | |
| Restructuring, relocation and related business disruption costs | | (840) | | | 20 | | | (40) | | | (860) | |
| Loss on debt extinguishment | | — | | | — | | | 11,650 | | | 11,650 | |
| Non-cash stock compensation | | — | | | — | | | 1,710 | | | 1,710 | |
| Loss (gain) on business divestitures and other assets | | 2,720 | | | (10) | | | — | | | 2,710 | |
| Debt issuance costs | | — | | | — | | | 190 | | | 190 | |
| Unrealized foreign currency remeasurement costs | | 270 | | | 950 | | | 420 | | | 1,640 | |
| Adjusted EBITDA | | $ | 31,330 | | | $ | 10,460 | | | $ | (11,120) | | | $ | 30,670 | |
The following table summarizes financial information for our operating segments for the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | Change | | Constant Currency Change |
| | 2022 | | As a Percentage
of Net Sales | | 2021 | | As a Percentage
of Net Sales | | $ | | % | | $ | | % |
| | (dollars in thousands) | | | | |
| Net Sales | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 212,860 | | | 58.8 | % | | $ | 238,210 | | | 56.5 | % | | $ | (25,350) | | | (10.6) | % | | $ | (25,360) | | | (10.6) | % |
| Horizon Europe-Africa | | 149,220 | | | 41.2 | % | | 183,100 | | | 43.5 | % | | (33,880) | | | (18.5) | % | | (19,540) | | | (10.7) | % |
| Total | | $ | 362,080 | | | 100.0 | % | | $ | 421,310 | | | 100.0 | % | | $ | (59,230) | | | (14.1) | % | | $ | (44,900) | | | (10.7) | % |
| Gross Profit | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 30,100 | | | 14.1 | % | | $ | 64,350 | | | 27.0 | % | | $ | (34,250) | | | (53.2) | % | | $ | (34,270) | | | (53.3) | % |
| Horizon Europe-Africa | | 10,830 | | | 7.3 | % | | 23,500 | | | 12.8 | % | | (12,670) | | | (53.9) | % | | (11,610) | | | (49.4) | % |
| Total | | $ | 40,930 | | | 11.3 | % | | $ | 87,850 | | | 20.9 | % | | $ | (46,920) | | | (53.4) | % | | $ | (45,880) | | | (52.2) | % |
| Selling, General and Administrative Expenses | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 33,010 | | | 15.5 | % | | $ | 35,750 | | | 15.0 | % | | $ | (2,740) | | | (7.7) | % | | $ | (2,750) | | | (7.7) | % |
| Horizon Europe-Africa | | 16,620 | | | 11.1 | % | | 20,800 | | | 11.4 | % | | (4,180) | | | (20.1) | % | | (2,620) | | | (12.6) | % |
| Corporate | | 15,170 | | | N/A | | 13,190 | | | N/A | | 1,980 | | | 15.0 | % | | 1,980 | | | 15.0 | % |
| Total | | $ | 64,800 | | | 17.9 | % | | $ | 69,740 | | | 16.6 | % | | $ | (4,940) | | | (7.1) | % | | $ | (3,390) | | | (4.9) | % |
| Operating (Loss) Profit | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | (2,910) | | | (1.4) | % | | $ | 28,600 | | | 12.0 | % | | $ | (31,510) | | | (110.2) | % | | $ | (31,520) | | | (110.2) | % |
| Horizon Europe-Africa | | (5,790) | | | (3.9) | % | | 2,700 | | | 1.5 | % | | (8,490) | | | (314.4) | % | | (8,990) | | | (333.0) | % |
| Corporate | | (15,170) | | | N/A | | (13,190) | | | N/A | | (1,980) | | | (15.0) | % | | (1,980) | | | (15.0) | % |
| Total | | $ | (23,870) | | | (6.6) | % | | $ | 18,110 | | | 4.3 | % | | $ | (41,980) | | | (231.8) | % | | $ | (42,490) | | | (234.6) | % |
| Capital Expenditures | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 1,020 | | | 0.5 | % | | $ | 4,380 | | | 1.8 | % | | $ | (3,360) | | | (76.7) | % | | $ | (3,360) | | | (76.7) | % |
| Horizon Europe-Africa | | 7,910 | | | 5.3 | % | | 5,560 | | | 3.0 | % | | 2,350 | | | 42.3 | % | | 3,160 | | | 56.8 | % |
| Corporate | | — | | | N/A | | — | | | N/A | | — | | | — | % | | — | | | — | % |
| Total | | $ | 8,930 | | | 2.5 | % | | $ | 9,940 | | | 2.4 | % | | $ | (1,010) | | | (10.2) | % | | $ | (200) | | | (2.0) | % |
| Depreciation of Property and Equipment and Amortization of Intangibles | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 3,880 | | | 1.8 | % | | $ | 3,690 | | | 1.5 | % | | $ | 190 | | | 5.1 | % | | $ | 190 | | | 5.1 | % |
| Horizon Europe-Africa | | 5,010 | | | 3.4 | % | | 6,930 | | | 3.8 | % | | (1,920) | | | (27.7) | % | | (1,460) | | | (21.1) | % |
| Corporate | | 50 | | | N/A | | 100 | | | N/A | | (50) | | | (50.0) | % | | (50) | | | (50.0) | % |
| Total | | $ | 8,940 | | | 2.5 | % | | $ | 10,720 | | | 2.5 | % | | $ | (1,780) | | | (16.6) | % | | $ | (1,320) | | | (12.3) | % |
| Adjusted EBITDA | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 1,150 | | | 0.5 | % | | $ | 31,330 | | | 13.2 | % | | $ | (30,180) | | | (96.3) | % | | N/A | | N/A |
| Horizon Europe-Africa | | (20) | | | — | % | | 10,460 | | | 5.7 | % | | (10,480) | | | (100.2) | % | | N/A | | N/A |
| Corporate | | (11,600) | | | N/A | | (11,120) | | | N/A | | (480) | | | (4.3) | % | | N/A | | N/A |
| Total | | $ | (10,470) | | | (2.9) | % | | $ | 30,670 | | | 7.3 | % | | $ | (41,140) | | | (134.1) | % | | N/A | | N/A |
Results of Operations
Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021
Consolidated net sales decreased $59.2 million, or 14.1%, to $362.1 million during the six months ended June 30, 2022, as compared to $421.3 million during the six months ended June 30, 2021. Net sales for Horizon Americas decreased $25.3 million, driven primarily by lower sales volumes in the aftermarket and retail sales channels, partially offset by customer pricing recovery initiatives put in place in response to commodity and input cost increases. Net sales for Horizon Europe-Africa decreased $33.9 million, driven primarily by lower sales volumes in the aftermarket and OE sales channels and unfavorable currency translation, partially offset by customer pricing recovery initiatives put in place in response to commodity and input cost increases.
Gross profit margin was 11.3% and 20.9% during the six months ended June 30, 2022 and 2021, respectively. The decline in gross profit margin is primarily due to lower net sales in Horizon Americas and Horizon Europe-Africa as detailed above, coupled with unfavorable cost performance, primarily attributable to unfavorable material, supply chain and other manufacturing input costs associated with global macroeconomic factors.factors experienced during 2022.
SG&A expenses decreased $2.9$4.9 million to $16.9 million, or 14.6% of net sales, during the three months ended September 30, 2021, as compared to $19.8 million, or 16.6% of net sales, during the three months ended September 30, 2020. The decrease in SG&A is primarily attributable to the following:
–$1.4 million lower distribution center lease, operating and support costs; and
–$1.3$2.7 million lower personnel and other variable compensation costs.costs across the Company and favorable currency translation in Horizon Europe-Africa.
Horizon Americas’Operating margin was (6.6)% and 4.3% during the six months ended June 30, 2022 and 2021, respectively. Operating profit declined $42.0 million to an operating loss of $23.9 million during the six months ended June 30, 2022, from an operating profit decreased $0.8of $18.1 million to $12.4 million, or 10.7% of net sales, during the threesix months ended SeptemberJune 30, 2021, as compared to $13.2 million, or 11.1% of net sales, during the three months ended September 30, 2020. Decreased2021. The changes in operating profit and operating margin were primarily due to the operational results detailed above.
Horizon Americas’ Adjusted EBITDA decreased $1.0 million to $14.5 million during the three months ended September 30, 2021, as compared to Adjusted EBITDA of $15.5 million during the three months ended September 30, 2020. Adjusted EBITDA declined primarily due to the operational results detailed above.
Horizon Europe-Africa
Net sales by sales channel, in thousands, for Horizon Europe-Africa are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change |
| | 2021 | | 2020 | | $ | | % |
| Net Sales | | | | | | | | |
| Aftermarket | | $ | 22,400 | | | $ | 24,360 | | | $ | (1,960) | | | (8.0) | % |
| Automotive OEM | | 34,590 | | | 42,400 | | | (7,810) | | | (18.4) | % |
| Automotive OES | | 20,790 | | | 13,820 | | | 6,970 | | | 50.4 | % |
| E-commerce | | 1,950 | | | 630 | | | 1,320 | | | 209.5 | % |
| Industrial | | 480 | | | 550 | | | (70) | | | (12.7) | % |
| Other | | 480 | | | 730 | | | (250) | | | (34.2) | % |
| Total | | $ | 80,690 | | | $ | 82,490 | | | $ | (1,800) | | | (2.2) | % |
Net sales decreased $1.8 million, or 2.2%, to $80.7 million during the three months ended September 30, 2021, as compared to $82.5 million, during the three months ended September 30, 2020, primarily attributable to lower sales volumes in the aftermarket and automotive OEM sales channels, partially offset by higher sales volumes in the automotive OES and e-commerce sales channels. The decrease was also partially offset by $5.8 million of pricing recovery initiatives implemented, primarily in the OE sales channels, to recover increased material and input costs. The decrease was also partially offset by $1.1 million of favorable currency translation.
Horizon Europe-Africa’s gross profit decreased $0.9 million, or 9.2%, to $9.5 million, or 11.7% of net sales, during the three months ended September 30, 2021, from $10.4 million, or 12.6% of net sales, during the three months ended September 30, 2020. The decrease in gross profit and gross profit margin reflects the changes in net sales detailed above, coupled with unfavorable cost performance primarily attributable to unfavorable material, supply chain and other manufacturing input costs associated with global macroeconomic factors.
SG&A increased $1.6 million to $9.6 million, or 11.9% of net sales, during the three months ended September 30, 2021, as compared to $8.0 million, or 9.6% of net sales, during the three months ended September 30, 2020. The increase in SG&A is primarily attributable to the following:
–$0.6 million increased allowance for doubtful accounts; and
–$0.5 million of higher personnel and other variable compensation costs.
Horizon Europe-Africa’s operating (loss) increased $2.6 million to an operating (loss) of $(0.2) million, or (0.2)% of net sales, during the three months ended September 30, 2021, as compared to operating profit of $2.4 million, or 3.0% of net sales, during the three months ended September 30, 2020. The change in operating (loss) profit and operating margin were primarily due to the operational results detailed above.
Horizon Europe-Africa’s Adjusted EBITDA decreased $2.7 million to $3.4 million during the three months ended September 30, 2021, as compared to Adjusted EBITDA of $6.1 million during the three months ended September 30, 2020. Adjusted EBITDA declined primarily due to the operational results detailed above.
Corporate Expenses
Corporate expenses included in operating profit decreased $1.2 million to $5.9 million during the three months ended September 30, 2021, as compared to $7.1 million during the three months ended September 30, 2020. The decrease was primarily attributable to the following:
–$1.2 million lower personnel and other variable compensation costs.
Corporate Adjusted EBITDA was $(4.9) million during the three months ended September 30, 2021, as compared to Adjusted EBITDA of $(5.5) million during the three months ended September 30, 2020. The change in Adjusted EBITDA was primarily due to the operational results detailed above.
The following table summarizes Adjusted EBITDA for our operating segments for the nine months ended September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
| | Horizon Americas | | Horizon Europe-Africa | | Corporate | | Consolidated |
| | (dollars in thousands) |
| Net loss attributable to Horizon Global | | | | | | | | $ | (15,990) | |
| Net loss attributable to noncontrolling interest | | | | | | | | (970) | |
| Net loss | | | | | | | | $ | (16,960) | |
| Interest expense | | | | | | | | 21,000 | |
| Income tax expense | | | | | | | | 2,810 | |
| Depreciation and amortization | | | | | | | | 15,930 | |
| EBITDA | | $ | 43,230 | | | $ | 10,860 | | | $ | (31,310) | | | $ | 22,780 | |
| Net loss attributable to noncontrolling interest | | — | | | 970 | | | — | | | 970 | |
| Severance | | 50 | | | — | | | — | | | 50 | |
| Restructuring, relocation and related business disruption costs | | (780) | | | 50 | | | (30) | | | (760) | |
| Loss on debt extinguishment | | — | | | — | | | 11,650 | | | 11,650 | |
| Non-cash stock compensation | | — | | | — | | | 2,590 | | | 2,590 | |
| Loss on business divestitures and other assets | | 3,020 | | | — | | | 10 | | | 3,030 | |
| Debt issuance costs | | — | | | 70 | | | 290 | | | 360 | |
| Unrealized foreign currency remeasurement costs | | 260 | | | 1,900 | | | 820 | | | 2,980 | |
| Adjusted EBITDA | | $ | 45,780 | | | $ | 13,850 | | | $ | (15,980) | | | $ | 43,650 | |
The following table summarizes Adjusted EBITDA for our operating segments for the nine months ended September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 |
| | Horizon Americas | | Horizon Europe-Africa | | Corporate | | Consolidated |
| | (dollars in thousands) |
| Net loss attributable to Horizon Global | | | | | | | | $ | (31,150) | |
| Net loss attributable to noncontrolling interest | | | | | | | | (1,010) | |
| Net loss | | | | | | | | $ | (32,160) | |
| Interest expense | | | | | | | | 23,970 | |
| Income tax expense | | | | | | | | 170 | |
| Depreciation and amortization | | | | | | | | 16,150 | |
| EBITDA | | $ | 24,160 | | | $ | 3,150 | | | $ | (19,180) | | | $ | 8,130 | |
| Net loss attributable to noncontrolling interest | | — | | | 1,010 | | | — | | | 1,010 | |
| Loss from discontinued operations, net of tax | | — | | | — | | | 500 | | | 500 | |
| Severance | | 530 | | | (150) | | | (10) | | | 370 | |
| Restructuring, relocation and related business disruption costs | | 1,550 | | | 10 | | | 470 | | | 2,030 | |
| Non-cash stock compensation | | — | | | — | | | 2,190 | | | 2,190 | |
| Loss (gain) on business divestitures and other assets | | 1,020 | | | (180) | | | 20 | | | 860 | |
| Product liability and litigation claims | | — | | | 1,510 | | | — | | | 1,510 | |
| Debt issuance costs | | — | | | — | | | 1,840 | | | 1,840 | |
| Unrealized foreign currency remeasurement costs | | 280 | | | 860 | | | (490) | | | 650 | |
| Adjusted EBITDA | | $ | 27,540 | | | $ | 6,210 | | | $ | (14,660) | | | $ | 19,090 | |
The following table summarizes financial information for our operating segments for the nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Change | | Constant Currency Change |
| | 2021 | | As a Percentage
of Net Sales | | 2020 | | As a Percentage
of Net Sales | | $ | | % | | $ | | % |
| | (dollars in thousands) | | | | |
| Net Sales | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 354,060 | | | 57.3 | % | | $ | 285,630 | | | 58.8 | % | | $ | 68,430 | | | 24.0 | % | | $ | 68,880 | | | 24.1 | % |
| Horizon Europe-Africa | | 263,790 | | | 42.7 | % | | 199,740 | | | 41.2 | % | | 64,050 | | | 32.1 | % | | 48,090 | | | 24.1 | % |
| Total | | $ | 617,850 | | | 100.0 | % | | $ | 485,370 | | | 100.0 | % | | $ | 132,480 | | | 27.3 | % | | $ | 116,970 | | | 24.1 | % |
| Gross Profit | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 93,660 | | | 26.5 | % | | $ | 70,720 | | | 24.8 | % | | $ | 22,940 | | | 32.4 | % | | $ | 22,650 | | | 32.0 | % |
| Horizon Europe-Africa | | 32,950 | | | 12.5 | % | | 16,950 | | | 8.5 | % | | 16,000 | | | 94.4 | % | | 14,250 | | | 84.1 | % |
| Total | | $ | 126,610 | | | 20.5 | % | | $ | 87,670 | | | 18.1 | % | | $ | 38,940 | | | 44.4 | % | | $ | 36,900 | | | 42.1 | % |
| Selling, General and Administrative Expenses | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 52,660 | | | 14.9 | % | | $ | 51,400 | | | 18.0 | % | | $ | 1,260 | | | 2.5 | % | | $ | 1,150 | | | 2.2 | % |
| Horizon Europe-Africa | | 30,400 | | | 11.5 | % | | 22,980 | | | 11.5 | % | | 7,420 | | | 32.3 | % | | 5,530 | | | 24.1 | % |
| Corporate | | 19,110 | | | N/A | | 19,380 | | | N/A | | (270) | | | (1.4) | % | | (270) | | | (1.4) | % |
| Total | | $ | 102,170 | | | 16.5 | % | | $ | 93,760 | | | 19.3 | % | | $ | 8,410 | | | 9.0 | % | | $ | 6,410 | | | 6.8 | % |
| Operating Profit (Loss) | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 41,000 | | | 11.6 | % | | $ | 19,330 | | | 6.8 | % | | $ | 21,670 | | | 112.1 | % | | $ | 21,490 | | | 111.2 | % |
| Horizon Europe-Africa | | 2,550 | | | 1.0 | % | | (6,040) | | | (3.0) | % | | 8,590 | | | 142.2 | % | | 8,700 | | | 144.0 | % |
| Corporate | | (19,110) | | | N/A | | (19,380) | | | N/A | | 270 | | | 1.4 | % | | 270 | | | 1.4 | % |
| Total | | $ | 24,440 | | | 4.0 | % | | $ | (6,090) | | | (1.3) | % | | $ | 30,530 | | | 501.3 | % | | $ | 30,460 | | | 500.2 | % |
| Capital Expenditures | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 6,550 | | | 1.8 | % | | $ | 2,650 | | | 0.9 | % | | $ | 3,900 | | | 147.2 | % | | $ | 3,890 | | | 146.8 | % |
| Horizon Europe-Africa | | 8,180 | | | 3.1 | % | | 5,440 | | | 2.7 | % | | 2,740 | | | 50.4 | % | | 2,230 | | | 41.0 | % |
| Corporate | | — | | | N/A | | — | | | N/A | | — | | | — | % | | — | | | — | % |
| Total | | $ | 14,730 | | | 2.4 | % | | $ | 8,090 | | | 1.7 | % | | $ | 6,640 | | | 82.1 | % | | $ | 6,120 | | | 75.6 | % |
| Depreciation of Property and Equipment and Amortization of Intangibles | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 5,680 | | | 1.6 | % | | $ | 6,300 | | | 2.2 | % | | $ | (620) | | | (9.8) | % | | $ | (620) | | | (9.8) | % |
| Horizon Europe-Africa | | 10,110 | | | 3.8 | % | | 9,690 | | | 4.9 | % | | 420 | | | 4.3 | % | | (180) | | | (1.9) | % |
| Corporate | | 140 | | | N/A | | 160 | | | N/A | | (20) | | | (12.5) | % | | (20) | | | (12.5) | % |
| Total | | $ | 15,930 | | | 2.6 | % | | $ | 16,150 | | | 3.3 | % | | $ | (220) | | | (1.4) | % | | $ | (820) | | | (5.1) | % |
| Adjusted EBITDA | | | | | | | | | | | | | | | | |
| Horizon Americas | | $ | 45,780 | | | 12.9 | % | | $ | 27,540 | | | 9.6 | % | | $ | 18,240 | | | 66.2 | % | | N/A | | N/A |
| Horizon Europe-Africa | | 13,850 | | | 5.3 | % | | 6,210 | | | 3.1 | % | | 7,640 | | | 123.0 | % | | N/A | | N/A |
| Corporate | | (15,980) | | | N/A | | (14,660) | | | N/A | | (1,320) | | | (9.0) | % | | N/A | | N/A |
| Total | | $ | 43,650 | | | 7.1 | % | | $ | 19,090 | | | 3.9 | % | | $ | 24,560 | | | 128.7 | % | | N/A | | N/A |
Results of Operations
Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020
Consolidated net sales increased $132.5 million, or 27.3%, to $617.9 million during the nine months ended September 30, 2021, as compared to $485.4 million during the nine months ended September 30, 2020. The impact was driven by an increase in net sales in Horizon Americas and Horizon Europe-Africa primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company, most significantly in the first and second quarters of 2020. Net sales for Horizon Americas increased $68.4 million, driven by increases in sales volumes as well as pricing recovery initiatives driven by commodity and input cost increases. Net sales for Horizon Europe-Africa increased $64.1 million, driven by increases in sales volumes as well as favorable currency translation.
Gross profit margin was 20.5% and 18.1% during the nine months ended September 30, 2021 and 2020, respectively. The improved gross profit margin is primarily due to higher net sales in Horizon Americas and Horizon Europe-Africa as detailed above, coupled with favorable net sales channel mix, as well as improved operating efficiency during the nine months ended September 30, 2021, as compared to nine months ended September 30, 2020, as a result of the impacts of the COVID-19 pandemic experienced during the nine months ended September 30, 2020.
SG&A increased $8.4 million primarily attributable to $5.8 million higher personnel and other variable compensation costs combined across the Company, driven primarily by temporary salary reductions in the U.S. and the Company’s participation in certain payroll reimbursement programs during the nine months ended September 30, 2020 in response to the impacts of the COVID-19 pandemic. Unfavorable currency translation in Horizon Europe-Africa of $1.9 million also contributed to the increase.
Operating margin was 4.0% and (1.3)% during the nine months ended September 30, 2021 and 2020, respectively. Operating profit improved $30.5 million to an operating profit of $24.4 million during the nine months ended September 30, 2021, from an operating (loss) of $(6.1) million during the nine months ended September 30, 2020. Improved operating profit and operating margin were primarily due to the operational resultsdecline detailed above.
Other expense, net increased $4.5$4.7 million to $5.9$8.9 million during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $1.4$4.2 million during the ninesix months ended SeptemberJune 30, 2020,2021, primarily attributable to $2.4$2.5 million of higher foreign currency loss during the ninesix months ended SeptemberJune 30, 20212022 as compared to the ninesix months ended SeptemberJune 30, 2020.2021. The increase was also due to a $1.0 million commitment fee per the $2.2 million loss on the saleterms of the commitment letter associated with the Company’s Brazil business completedSeries B Preferred Stock, as defined below, during the second quarter of 2021.six months ended June 30, 2022. Refer to Note 4,8, Goodwill and Other Intangible Assets,Redeemable Preferred Stock, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information of the sale ofon the Company’s Brazil business.Series B Preferred Stock.
Interest expense decreased $3.0increased $2.0 million to $21.0$16.0 million during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $24.0$14.0 million during the ninesix months ended SeptemberJune 30, 2020,2021, primarily as a result of the Company’s amendment to its Senior Term Loan Credit Agreement in February 2021 refinancing,2022, which resulted in a new term loan agreement and replaced the Company’s existing term loan agreement. The new term loan included a lower interest rate and removed paid-in-kind interest, resulting in loweradditional borrowings as well as increased interest expense for the ninesix months ended SeptemberJune 30, 2021. Additionally,2022, as a result of the refinancing, the Company incurred an $11.7 million loss on debt extinguishment relatedcompared to the termination of the existing term loan agreement during the ninesix months ended SeptemberJune 30, 2021. Refer to Note 8,7, Long-term Debt, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information.information of the Company’s long-term debt.
The effective income tax rate for the ninesix months ended SeptemberJune 30, 2022 and 2021 and 2020 was (19.9)(1.4)% and (0.5)(20.4)%, respectively. The increase in tax expense and related impacts on the effective income tax rate for the nine months ended September 30, 2021 is attributable to projected jurisdictional income mix in jurisdictions not in a valuation allowance, coupled with utilization limitations on usage of U.S. tax attributes. The difference in the effective tax rate compared to the statutory tax rate for both periods is attributable to the Company’s valuation allowance recorded in the U.S. and severalcertain foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses, and therefore, are excluded from the estimated effective tax rate.
Net loss from continuing operations improved $14.7increased $35.2 million, to $49.4 million during the six months ended June 30, 2022, compared to a net loss of $(17.0)$14.2 million forduring the ninesix months ended SeptemberJune 30, 2021, compared to a2021. The change in net loss from continuing operations of $(31.7) million for the nine months ended September 30, 2020. The improvement was attributable to the operational results detailed above.
Loss from discontinued operations, net of tax is attributable to the sale of the Company’s former APAC operating segment, which was sold in September 2019. During the nine months ended September 30, 2020, the remaining post-closing conditions of the sale were completed, including a true up to net cash proceeds, which resulted in a loss on sale of discontinued operations of $0.5 million, in accordance with Accounting Standards Codification 205-20, “Discontinued Operations”.
See below for a discussion of operating results by segment.
Horizon Americas
Net sales by sales channel, in thousands, for Horizon Americas are as follows:
| | | Nine Months Ended September 30, | | Change | | Six Months Ended June 30, | | Change |
| | 2021 | | 2020 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Net Sales | Net Sales | | | | | | | | | Net Sales | | | | | | | | |
| Aftermarket | Aftermarket | | $ | 107,640 | | | $ | 84,440 | | | $ | 23,200 | | | 27.5 | % | Aftermarket | | $ | 52,120 | | | $ | 72,250 | | | $ | (20,130) | | | (27.9) | % |
| Automotive OEM | Automotive OEM | | 74,860 | | | 53,880 | | | 20,980 | | | 38.9 | % | Automotive OEM | | 49,590 | | | 50,170 | | | (580) | | | (1.2) | % |
| Automotive OES | Automotive OES | | 11,670 | | | 5,330 | | | 6,340 | | | 118.9 | % | Automotive OES | | 8,150 | | | 8,100 | | | 50 | | | 0.6 | % |
| Retail | Retail | | 81,650 | | | 80,690 | | | 960 | | | 1.2 | % | Retail | | 47,530 | | | 55,190 | | | (7,660) | | | (13.9) | % |
| E-commerce | E-commerce | | 51,220 | | | 41,120 | | | 10,100 | | | 24.6 | % | E-commerce | | 34,050 | | | 34,250 | | | (200) | | | (0.6) | % |
| Industrial | Industrial | | 27,020 | | | 20,120 | | | 6,900 | | | 34.3 | % | Industrial | | 21,420 | | | 18,250 | | | 3,170 | | | 17.4 | % |
| Other | | — | | | 50 | | | (50) | | | N/A | |
| | Total | Total | | $ | 354,060 | | | $ | 285,630 | | | $ | 68,430 | | | 24.0 | % | Total | | $ | 212,860 | | | $ | 238,210 | | | $ | (25,350) | | | (10.6) | % |
Net sales increased $68.5decreased $25.3 million, or 24.0%10.6%, to $354.1$212.9 million during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $285.6$238.2 million during the ninesix months ended SeptemberJune 30, 2020,2021, primarily attributable to higherlower sales volumes. The increased volumes are primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company, most significantly in the firstaftermarket and second quartersretail sales channels. The decrease in net sales was partially offset by $29.5 million of 2020. Net sales also increased by $26.1 million due tocustomer pricing recovery initiatives implemented,recoveries, primarily in the aftermarket, OE, retail and e-commerce sales channels, to recover increased material and input costs. The increasedecrease was also partially offset by a $1.2$4.6 million increasereduction in sales returns and allowances.
Horizon Americas’ gross profit increased $23.0decreased $34.3 million, or 32.4%53.2%, to $93.7$30.1 million, or 26.5%14.1% of net sales, during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $70.7$64.4 million, or 24.8%27.0% of net sales, during the ninesix months ended SeptemberJune 30, 2020.2021. The increasedecrease in gross profit and gross profit margin reflects the changes in net sales detailed above, coupled with unfavorable cost performance, primarily attributableinclusive of a significant mix shift from higher margin sales channels to unfavorablelower margin sales channels, and is net of customer pricing recoveries discussed above. Gross profit and gross profit margin were also negatively impacted during the first half of 2022 by increased material, supply chain and other manufacturing input costs associated withattributable to significant commodity and logistics cost increases in the Company’s supply chain due to global macroeconomic factors. These global macroeconomic factors impacted business performance and were not able to be fully passed through to our customers during the first half of 2022, given there is generally a delay in such recoveries due to market pressures and restrictions within certain customer contracts.
SG&A increased $1.3expenses decreased $2.8 million to $52.7$33.0 million, or 14.9%15.5% of net sales during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $51.4$35.8 million, or 18.0%15.0% of net sales, during the ninesix months ended SeptemberJune 30, 2020.2021. The increasedecrease in SG&A wasexpenses is primarily attributable to the cost saving initiatives implemented by the Company and corresponding savings realized during the nine months ended September 30, 2020 in response to the impacts of the COVID-19 pandemic. As a result, the increase in SG&A is attributable to the following:
–$2.51.3 million higherlower personnel and other variable compensation costs, primarily as a result of temporary salary reductions in the U.S.costs; and other compensation and benefit cost reductions in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic; partially offset by:
–$1.10.5 million lower depreciationdistribution center lease, operating and amortization.support costs.
Horizon Americas’ operating profit increased $21.7decreased $31.5 million to $41.0an operating loss of $2.9 million, or 11.6%(1.4)% of net sales, during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $19.3an operating profit of $28.6 million, or 6.8%12.0% of net sales, during the ninesix months ended SeptemberJune 30, 2020. Improved2021. The decline in operating profit and operating margin were primarily due to the operational results detailed above.
Horizon Americas’ Adjusted EBITDA increased $18.3decreased $30.1 million to $45.8$1.2 million during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to Adjusted EBITDA of $27.5$31.3 million during the ninesix months ended SeptemberJune 30, 2020.2021. Adjusted EBITDA improved primarilydeclined due to operational results detailed above.
Horizon Europe-Africa
Net sales by sales channel, in thousands, for Horizon Europe-Africa are as follows:
| | | Nine Months Ended September 30, | | Change | | Six Months Ended June 30, | | Change |
| | 2021 | | 2020 | | $ | | % | | 2022 | | 2021 | | $ | | % |
| Net Sales | Net Sales | | | | | | | | | Net Sales | | | | | | | | |
| Aftermarket | Aftermarket | | $ | 70,950 | | | $ | 56,750 | | | $ | 14,200 | | | 25.0 | % | Aftermarket | | $ | 36,360 | | | $ | 48,550 | | | $ | (12,190) | | | (25.1) | % |
| Automotive OEM | Automotive OEM | | 127,340 | | | 104,420 | | | 22,920 | | | 21.9 | % | Automotive OEM | | 76,200 | | | 92,750 | | | (16,550) | | | (17.8) | % |
| Automotive OES | Automotive OES | | 56,820 | | | 34,000 | | | 22,820 | | | 67.1 | % | Automotive OES | | 30,210 | | | 36,030 | | | (5,820) | | | (16.2) | % |
| E-commerce | E-commerce | | 5,340 | | | 1,290 | | | 4,050 | | | 314.0 | % | E-commerce | | 4,610 | | | 3,390 | | | 1,220 | | | 36.0 | % |
| Industrial | Industrial | | 1,660 | | | 1,210 | | | 450 | | | 37.2 | % | Industrial | | 650 | | | 1,180 | | | (530) | | | (44.9) | % |
| Other | Other | | 1,680 | | | 2,070 | | | (390) | | | (18.8) | % | Other | | 1,190 | | | 1,200 | | | (10) | | | (0.8) | % |
| Total | Total | | $ | 263,790 | | | $ | 199,740 | | | $ | 64,050 | | | 32.1 | % | Total | | $ | 149,220 | | | $ | 183,100 | | | $ | (33,880) | | | (18.5) | % |
Net sales increased $64.1decreased $33.9 million, or 32.1%18.5%, to $263.8$149.2 million during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $199.7$183.1 million during the ninesix months ended SeptemberJune 30, 2020,2021, primarily attributable to higherlower sales volumes. The increased volumes are primarily attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company, most significantly in the firstaftermarket and second quartersOE sales channels. The decrease also includes $14.3 million of 2020. Net sales also increasedunfavorable currency translation. The decrease was partially offset by $5.9$14.6 million due toof customer pricing recovery initiatives implemented,recoveries, primarily in the aftermarket and OE sales channels, to recover increased material and input costs. The increase was also partially attributable to $16.0 million of favorable currency translation.
Horizon Europe-Africa’s gross profit increased $16.0decreased $12.7 million, or 94.4%53.9%, to $33.0$10.8 million, or 12.5%7.3% of net sales, during the ninesix months ended SeptemberJune 30, 2021,2022, from $17.0$23.5 million, or 8.5%12.8% of net sales, during the ninesix months ended SeptemberJune 30, 2020.2021. The increasedecrease in gross profit and gross profit margin reflects the changes in net sales detailed above, coupled with the unfavorable cost performance, primarily attributable to unfavorableimpact of increased material, supply chain and other manufacturing input costs, associated with global macroeconomic factors.and is net of customer pricing recoveries. Gross profit and gross profit margin were also negatively impacted in the first half of 2022 by the inability to flex costs efficiently resulting from OEM customer production schedule changes. The input cost increases were not able to be fully passed through to our customers during the first half of 2022, given there is generally a delay in such recoveries due to market pressures and restrictions within certain customer contracts.
SG&A increased $7.4decreased $4.2 million to $30.4$16.6 million, or 11.5%11.1% of net sales during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $23.0$20.8 million, or 11.5%11.4% of net sales, during the ninesix months ended SeptemberJune 30, 2020.2021. The increasedecrease in SG&A wasexpenses is primarily attributable to the cost saving initiatives implemented by the Company and corresponding savings realized during the nine months ended September 30, 2020 in response to the impacts of the COVID-19 pandemic. As a result, the increase in SG&A is attributable to the following:
–$2.21.6 million higher personnelof favorable currency translation; and other variable compensation cost, partially as a result of payroll costs reimbursed in the prior year under terms of certain government payroll reimbursement programs;
–$1.30.8 million of higherlower outside professional fees and other administrative costs; and
–$1.9 million of unfavorable currency translation.costs.
Horizon Europe-Africa’s operating profit increased $8.6decreased $8.5 million to an operating profitloss of $2.6$5.8 million, or 1.0% of net sales during the nine months ended September 30, 2021, as compared to an operating (loss) of $(6.0) million, or (3.0)(3.9)% of net sales during the ninesix months ended SeptemberJune 30, 2020. Improved2022, as compared to an operating profit (loss)of $2.7 million, or 1.5% of net sales, during the six months ended June 30, 2021. The decline in operating profit and operating margin were primarily due to the operational results describeddetailed above.
Horizon Europe-Africa’s Adjusted EBITDA increased $7.7 million to $13.9decreased by $10.5 million during the ninesix months ended SeptemberJune 30, 2021, as compared to Adjusted EBITDA of $6.22022 from $10.5 million during the ninesix months ended SeptemberJune 30, 2020.2021. Adjusted EBITDA improved primarilydeclined due to the operational results detailed above.
Corporate Expenses
Corporate expenses included in operating profit decreased $0.3loss increased $2.0 million to $19.1$15.2 million during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to $19.4$13.2 million during the ninesix months ended SeptemberJune 30, 2020.2021. The decreaseincrease was primarily attributable to the following:
–$1.61.3 million lowerhigher outside professional fees and other administrative costs; and
–$0.7 million higher costs incurred related to professional service fees and other costs associated with new debt issuance, amendments, and modifications and related structure changes; partially offset by:
–$1.1 million higher personnel and other variable compensation costs, primarily as a result of temporary salary reductions in the U.S. and other compensation and benefit cost reductions in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic.change.
Corporate Adjusted EBITDA was $(16.0)$(11.6) million during the ninesix months ended SeptemberJune 30, 2021,2022, as compared to Adjusted EBITDA of $(14.7)$(11.1) million during the ninesix months ended SeptemberJune 30, 2020.2021. The change in Adjusted EBITDA was primarily due to the higher outside professional fees and other administrative costs discussed above and was partially offset by lower personnel and other variable compensation costs described above.costs.
Liquidity and Capital Resources
Our capital and working capital requirements are funded through a combination of cash on hand, cash flows from operations, and various borrowings and factoring arrangements described below, including our asset-based Revolving Credit Facility (as defined below).Facility. As of SeptemberJune 30, 2021,2022 and December 31, 2020,2021, we had $10.4$10.4 million and $18.2$8.2 million, respectively, of cash and cash equivalents held at foreign subsidiaries. There may be country specific regulations, which may restrict or result in increased costs in the repatriation of these funds.
In March 2020, the Company, as guarantor, entered into a Loan and Security Agreement (the “Loan Agreement”) with Eclipse Business Capital LLC, formerly known as Encina Business Credit, LLC, (“Encina”), as agent for the lenders party thereto, and Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers (the “ABL Borrowers”). The Loan Agreement provides for an asset-based revolving credit facility (the “Revolving Credit Facility”) in the maximum aggregate principal amount of $75.0 million subject to customary borrowing base limitations contained therein, and may be increased at the ABL Borrowers’ request in increments of $5.0 million, up to a maximum of five times over the life of the Revolving Credit Facility, for a total increase of up to $25.0 million. The Loan Agreement has subsequently been amended as described below, toon several occasions that, among other modifications, increasethings, increased the maximum amount of credit available under the Revolving Credit Facility to $95.0 million. As of SeptemberJune 30, 2021, the Company2022, we had availability of $37.5$20.1 million under the Revolving Credit Facility and $7.0$16.0 million of cash and cash equivalents in the United States.
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, total cash and availability was $54.9$46.5 million and $83.4$39.2 million, respectively. The Company definesWe define cash and availability as cash and cash equivalents and amounts of cash accessible but undrawn from credit facilities.
During 2020, in response to the initial uncertain economic environment caused in part from the COVID-19 pandemic, the Company pursued funding from available government programs and other sources of liquidity designed to strengthen its balance sheet and enhance financial flexibility. These sources included short-term loans, some of which are forgivable if certain conditions are met as well as entering into or modifying other arrangements. A summary of these actions is described below.
In April 2020, Horizon Global Company LLC (the “U.S. Borrower”), a direct U.S.-based subsidiary of the Company, received a loan from PNC Bank, National Association for $8.7 million, pursuant to the Paycheck Protection Program (the “PPP Loan”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The PPP Loan, which is in the form of a note dated April 18, 2020 issued by the U.S. Borrower, matures on April 18, 2022. Funds from the PPP Loan may be used for payroll, costs used to continue group health care benefits, rent and utilities. Under the terms of the PPP Loan, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act.
The Company submitted its PPP Loan application in good faith in accordance with the CARES Act and the guidance issued by the Small Business Administration (the “SBA”), including the SBA’s Paycheck Protection Program’s Frequently Asked Questions. During 2020, the Company, in accordance with the final guidance issued by the United States Department of the Treasury (the “Treasury”), met the need and sized based criteria of the program.
As of September 30, 2021, the Company’s application of loan forgiveness of $7.1 million of the $8.7 million of funds originally received is subject to the SBA’s final determination of forgiveness, which we expect to receive in the fourth quarter of 2021, based on the review timelines once a borrower has submitted its application in accordance with the issued regulations. The potential loan forgiveness is determined, subject to limitations, based on the use of loan proceeds for payment of qualifying expenses over the 24 weeks after the loan proceeds were disbursed. The unforgiven portion of the loan has an interest rate of 1.0% per annum. In July 2021, the note was amended to make the unforgiven portion payable over five years on a monthly basis. The Company has deferred interest payments until the Company’s application for forgiveness is completed in accordance with the guidance issued by the SBA and Treasury and the terms of the Company’s PPP Loan. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of $7.1 million of our PPP Loan, there can be no assurance that forgiveness for any portion of the PPP Loan will be obtained.
In March 2020, Westfalia-Automotive GmbH (“Westfalia”), an indirect subsidiary of the Company, was approved for a government payroll reimbursement program in Germany under the Kurzarbeitergeld (the “KUG”). The KUG is designed to reimburse employers for payroll costs incurred and paid to employees affected by the business disruption and government mandated operating restrictions in place due to the COVID-19 pandemic for the period March 1, 2020 through August 31, 2020. Westfalia was approved to receive reimbursement of certain costs for the period March 19, 2020 through August 31, 2020. The Company was reimbursed $3.3 million for qualifying payroll costs under terms of the KUG for the twelve months ended December 31, 2020.
We believe the combination of these sources, as well as the changes to our capital structure following our recent refinancing activities as fully summarizeddescribed below, provides us with sources of both short-term and long-term liquidity that will enable usthe Company to meet material cash obligations as well as our working capital, capital expenditures and other funding requirements.requirements for at least the next twelve months and for the foreseeable future thereafter. Our ability to fund our working capital needs, debt payments and other obligations, and to comply with financial covenants, including borrowing base limitations under our Revolving Credit Facility, depends on our future operating performance and cash flow and many factors outside of our control, including the costs of raw materials, the state of the automotive accessories market and other macroeconomic conditions.
Discussion of Going Concern
The Company’s condensed consolidated financial and economic conditionsstatements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the extentsatisfaction of liabilities in the normal course of business.
The Company has a history of recurring net operating losses and durationcash outflows from operations. As of June 30, 2022, the Company was in compliance with all applicable covenants in agreements governing its debt. However, based on the Company’s projected financial performance for the twelve-month period subsequent to the date of the impactfiling of this Quarterly Report on Form 10-Q, the Company projects that it will not be in compliance with a financial covenant under the Company’s Senior Term Loan Credit Agreement, as defined below, as of March 31, 2023, which would result in an event of default. Such a default would allow the lender under the Senior Term Loan Credit Agreement to accelerate the maturity of the COVID-19 pandemic.debt, which carries a balance of $225.0 million as of June 30, 2022, making it due and payable at that time. This would, in turn, result in cross-default of the Company’s Revolving Credit Facility, which carries a balance of $73.9 million as of June 30, 2022. The Company does not have sufficient cash on hand or available liquidity that can be utilized to repay these outstanding amounts in the event of default.
In response to the potential covenant breach, the Company is in discussions with its lender to amend the terms of its financial covenant under the Senior Term Loan Credit Agreement. The Company has a history of successfully amending and extending credit agreements with its current lenders and believes it is probable such amendment will be completed. We believe that these actions will allow the Company to continue as a going concern and remain in compliance with our financial covenants for the twelve months from the issuance of the Company’s condensed consolidated financial statements.
Cash Flows - Operating Activities
Net cash used for and provided by operating activities during the ninesix months ended SeptemberJune 30, 2022 and 2021 and 2020 was $(30.6)$24.4 million and $24.2$27.6 million, respectively.
During the ninesix months ended SeptemberJune 30, 2021, the Company generated $24.52022, we used $27.1 million in cash flows, based on the reported net loss of $(17.0)$49.4 million and after considering the effects of non-cash items related to depreciation, amortizationamortization of intangible assets, loss on debt extinguishment, amortization of original issuance discount and debt issuance costs, deferred income taxes, non-cash compensation expense, paid-in-kind interest, and other, net. During the ninesix months ended SeptemberJune 30, 2020, the Company2021, we generated $3.5$18.8 million in cash flows, based on the reported net loss of $(31.7)$14.2 million and after considering the effects of similar non-cash items previously described.described, in addition to the loss on debt extinguishment of the Company’s former term loan during the first quarter of 2021.
Changes in operating assets and liabilities used $(55.2)sourced $2.7 million and sourced $20.7used $46.5 million of cash during the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.
Changes in accounts receivable resulted in a net use of cash of $(12.4)$23.1 million and $(35.2)and $30.6 million during the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively. The increase in accounts receivable was lower in the ninesix months ended SeptemberJune 30, 20212022 as compared to the ninesix months ended SeptemberJune 30, 20202021 driven primarily as a result of increased collections overby lower net sales activity in the priorcurrent year.
Changes in inventoryinventories resulted in a use of cash of $(52.7)$6.3 million and $31.4 million during the ninesix months ended SeptemberJune 30, 2022 and 2021, and a source of cash of $30.1 million during the nine months ended September 30, 2020.respectively. The increase in inventoryinventories during the ninesix months ended SeptemberJune 30, 2022 was primarily due to a continuation of macroeconomic factors, including elevated costs of raw materials, and contributed to higher inventory costs, including inventory in-transit. The increase is also attributable to reduced volumes compared to our seasonal inventory build in order to meet anticipated demand of a traditional selling season. The increase in inventories during the six months ended June 30, 2021 was primarily due in part to recent macroeconomic factors such as risingresulting in increased costs of raw materials, constraints on shipping container availability and port congestion leading to higher inventory costs as well as seasonal inventory build in order to meet the demand of our traditional selling season.
Changes in prepaid expenses and levelsother assets resulted in a net use of in-transit inventory. The decrease in inventorycash of $2.5 million and $0.4 million during the ninesix months ended SeptemberJune 30, 20202022 and 2021, respectively. The increase in prepaid expenses and other assets during the six months ended June 30, 2022 and 2021 was primarily due to improved inventory management coupled with an extended selling season during the nine months ended September 30, 2020.mix of invoicing from vendors and subsequent payments.
Changes in accounts payable and accrued liabilities resulted in a source of cash of $11.8$34.6 million and $29.8$16.0 million during the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. The lowerhigher source of cash for the ninesix months ended SeptemberJune 30, 20212022 as compared to the ninesix months ended SeptemberJune 30, 20202021 is primarily due to the timing of payments made to suppliers, mix of vendors and related terms.
Cash Flows - Investing Activities
Net cash used for investing activities during the ninesix months ended SeptemberJune 30, 2022 and 2021 was $8.9 millionand 2020 was $(14.7) million and $(8.0)$9.9 million, respectively.
During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, capital expenditures were $(14.7)$8.9 million and $(8.1)$9.9 million, respectively, and related to growth, capacity and productivity-related projects within Horizon Americas and Horizon Europe-Africa. The increasenet decrease in capital expenditures is primarily due to the Company’s curtailment or retiming of certain projects during the ninesix months ended SeptemberJune 30, 2020,2022 is attributable to lower spending in responseHorizon Americas, partially offset by increased capital expenditures in Horizon Europe-Africa to the impactssupport growth and business disruptions of the COVID-19 pandemic.capacity expenditures associated with our planned low-cost country expansion.
Cash Flows - Financing Activities
Net cash provided by financing activities was $18.0$135.7 million and $17.9$17.3 million during the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.
During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, net proceeds from the Revolving Credit Facility, net of issuance costs, were $20.7$15.8 million and $20.0 million, respectively.
During the six months ended June 30, 2022, proceeds from borrowings on our term loan, net of issuance costs, and related issuance of common stock warrants were $118.2 million and $26.4$3.0 million, respectively.respectively. During the ninesix months ended September 30, 2020, net repayments on the Company’s former asset based lending facility totaled $(19.9) million.
During the nine months ended SeptemberJune 30, 2021, proceeds from the Company’s newour term loan, net of issuance costs, and related issuance of common stock warrants were $75.3 million and $16.3 million, respectively. During the ninesix months ended SeptemberJune 30, 2021, repayments of borrowings on Replacement Term Loan, as defined below,our former term loan, including transaction fees, were $(94.9)$94.9 million.
Additionally, during the nine months ended September 30, 2020, proceeds from the PPP Loan were $8.7 million.
Factoring Arrangements
The Company hasWe have factoring arrangements with financial institutions to sell certain accounts receivable. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, total receivables sold under certain non-recourse factoring arrangements was $225.1were $127.5 million and $166.1$158.2 million, respectively. We utilize factoring arrangements as part of our working capital needs. The costs of participating in these arrangements are immaterial to our results. Refer to Note 3, Summary of Significant Accounting Policies, in Item 8,
“Financial Statements and Supplementary Data,” included within our Annual Report on Form 10-K for the twelve months ended December 31, 2020,2021, for additional information.
Our Debt and Other Commitments
Revolving Credit Facility
We and certain of our subsidiaries are party to the asset-based Revolving Credit Facility as defined and described above.governed by the Loan Agreement. The Revolving Credit Facility provides for $75.0$95.0 million of funding which has been subsequently increased as described below, on a revolving basis, subject to borrowing base availability, and matures on March 13, 2023.2024. As of SeptemberJune 30, 2021,2022, there was $44.9$73.9 million outstanding on the Revolving Credit Facility bearing interest at a weighted average rate of 5.3%.Facility.
In February 2021, the Company entered into a limited consent to the Loan Agreement governing its Revolving Credit Facility, that among other modifications, consented to the Company’s entering into the Senior Term Loan Credit Agreement, as defined and described below.
In April 2021, the CompanyEffective March 31, 2022, we entered into an amendment to the Loan Agreement governing its Revolving Credit Facility, that among other modifications,temporarily increased the maximum amount of credit available under the Revolving Credit Facility to $85.0 million. The amendment also increased sub-limits relating to the Company’sour ability to borrow against receivables and in-transit inventory as well as inventory located in the Company’sour Mexico facilities.
facilities, which was initially effective through June 30, 2022. On September 17, 2021, the Company entered into an amendment toJune 30, 2022, the Loan Agreement governing its Revolving Credit Facility, that among other modifications, increasedwas amended to extend the maximum amounteffective date of credit availablethe temporary borrowing capacity through September 30, 2022. The March 31, 2022 amendment also replaced the London Interbank Offered Rate (“LIBOR”) based interest rate with the Adjusted Term Secured Overnight Financing Rate (“SOFR”). As a result of the amendment, interest on loans under the Revolving Credit FacilityLoan Agreement is payable in cash at the interest rate of SOFR plus 4.00% per annum, subject to $95.0 million. The amendment also increaseda 1.00% SOFR floor. Beginning September 30, 2022, the Company’s abilityinterest rate on all loans under the Loan Agreement will be SOFR plus 3.50% to borrow against receivables4.00% per annum, subject to a 1.00% SOFR floor and sub-limits relating to in-transit inventory and inventory located certain conditions defined in the Company’s Mexico facilities. The increased borrowing capacity against receivables and inventory is effective through December 31, 2021.Loan Agreement.
In addition, the CompanySenior Term Loan Credit Agreement
We and certain of itsour subsidiaries, have been or are parties to other long-term credit agreements, including the Senior Term Loan Credit Agreement, as defined and described below. As of September 30, 2021, there was $100.0 million outstanding on the Senior Term Loan Credit Agreement bearing cash interest at 7.50%.
In February 2017, the Company completed a public offering of 2.75% Convertible Senior Notes due 2022 (the “Convertible Notes”) in an aggregate principal amount of $125.0 million. Interest is payable on January 1 and July 1 of each year.
First Lien Term Loan Agreement and Second Lien Term Loan Agreement
In March 2019, the Company amended and restated the existing term loan agreement (the “First Lien Term Loan Agreement”) to permit the Company to, among other things, enter into the Second Lien Term Loan Agreement, as defined and described below.
In March 2019, the Company entered into a credit agreement (the “Second Lien Term Loan Agreement”) with Cortland Capital Markets Services LLC, as administrative agent and collateral agent, and Corre Partners Management L.L.C., as representative of the lenders, and the lenders party thereto.
In May 2020, the Company entered into amendments, limited waivers and consents in connection with the Loan Agreement governing its Revolving Credit Facility, the First Lien Term Loan Agreement, and the Second Lien Term Loan Agreement, each with an effective date of April 1, 2020, that, among other things, consented to the Company’s applying for, obtaining and incurring the PPP Loan, as defined and described above.
As a result of the Replacement Term Loan Amendment, as defined and described below, the outstanding balance and any accrued interest under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement was replaced by the Replacement Term Loan, as defined and described below.
Replacement Term Loan
In July 2020, the Company entered into a limited consent to the Loan Agreement governing its Revolving Credit Facility and the Replacement Term Loan Amendment (the “Eleventh Term Amendment”) to amend the First Lien Term Loan Agreement and Second Lien Term Loan Agreement. The Eleventh Term Amendment provided replacement term loans (the “Replacement Term Loan”) that refinanced and replaced the outstanding balances under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement, plus any accrued interest thereon.
In February 2021, the Company entered into the Senior Term Loan Credit Agreement, as defined and described below. The proceeds received from the initial borrowings under the Senior Term Loan Credit Agreement were used to repay in full all outstanding debt and accrued interest on the Company’s Replacement Term Loan. As a result of the repayment, the credit agreement governing the Company’s Replacement Term Loan was terminated and is no longer in effect.
Senior Term Loan Credit Agreement
On February 2, 2021, the Company entered into a credit agreement (the “Senior Term Loan Credit Agreement”) that we entered into in February 2021, with Atlantic Park Strategic Capital Fund, L.P. (“Atlantic Park”), as administrative agent and collateral agent, and the lenders party thereto (collectively, the “Lenders”).thereto. The Senior Term Loan Credit Agreement provides for an initial term loan facility (the “2021 Senior Term Loan”) in the aggregate principal amount of $100.0 million, all of which has beenwas borrowed by the Company and was used to repay the Replacementour former term loan. The Senior Term Loan as described above, andCredit Agreement also provided for a delayed draw term loan facility in the aggregate principal amount of up to $125.0 million, which may be drawn by the Company in up to three separate borrowings through June 30, 2022. A ticking fee of 25 basis points per annum will accrue on the undrawn portion of the delayed draw term loan facility.
Interest onAll outstanding borrowings under the Senior Term Loan Credit Agreement is payablemature on February 2, 2027.
In February 2022, we entered into an amendment to our Senior Term Loan Credit Agreement with Atlantic Park. The amendment provided for a $35.0 million delayed draw facility, which we borrowed in full (the “February 2022 Delayed Draw Term Loan”) under our existing delayed draw term loan facility and allowed the net proceeds to be used for working capital purposes and to fund low-cost country expansion in our Horizon Europe-Africa operating segment.
In connection with the February 2022 Delayed Draw Term Loan, we issued warrants (“Senior Term Loan Amendment Warrants”) to Atlantic Park to purchase up to 975,000 shares of our common stock, with an exercise price of $9.00 per share. The Senior Term Loan Amendment Warrants are exercisable at any time prior to February 10, 2027. On May 24, 2022, shareholders approved the proposal to issue common shares upon the exercise of the issued warrants.
On June 27, 2022, we borrowed the remaining $90.0 million under our existing delayed draw term loan facility (the “June 2022 Delayed Draw Term Loan”). The proceeds of the June 2022 Delayed Draw Term Loan were used by the Company to repay $85.0 million of principal and $1.7 million of accrued interest on our Convertible Notes, as defined below, which matured on July 1, 2022. Following the full draw on the delayed draw term loans as of June 30, 2022, the February 2022 Delayed Draw Term Loan, the June 2022 Delayed Draw Term Loan and the 2021 Senior Term Loan are collectively referred to as the Senior Term Loan. As of June 30, 2022, there was $225.0 million outstanding on the Senior Term Loan bearing cash on a quarterly basisinterest at the interest rate of LIBOR plus 7.50% per annum, subject to a 1.00% LIBOR floor. The
Convertible Notes
In February 2017, we completed a public offering of 2.75% Convertible Senior Notes (the “Convertible Notes”) in an aggregate principal amount of $125.0 million. During the second quarter of 2022, we issued Series B Preferred Stock, as defined below, in exchange for $40.0 million of the outstanding principal balance of the Convertible Notes. On July 1, 2022, the proceeds of the June 2022 Delayed Draw Term Loan Creditwere used to repay $85.0 million of principal and $1.7 million of accrued interest. As of June 30, 2022, the combined $86.7 million was held as restricted cash.
Series B Preferred Stock
In February 2022, the Company executed a commitment letter with Corre Partners Management, LLC, acting on behalf of certain investment funds for which it acts as investment manager (collectively, the “Corre Funds”), to issue, solely at the Company’s option, up to $40.0 million of a new series of our preferred stock, the proceeds of which would be used by the Company to repay a portion of our Convertible Notes and for working capital and general corporate purposes.
On June 27, 2022, we entered into a Preferred Stock Purchase Agreement includes customary affirmative and negative covenants, including(the “Purchase Agreement”) with the Corre Funds pursuant to which the Corre Funds purchased 40,000 shares of our Series B Preferred Stock, par value $0.01 per share (the “Series B Preferred Stock”), in exchange for $40.0 million aggregate principal amount of our Convertible Notes, which were cancelled by us. Pursuant to the terms of the Purchase Agreement, we also issued the Corre Funds an additional 1,000 shares of Series B Preferred Stock in satisfaction of our obligation to pay Corre Funds a commitment fee pursuant to the terms of the commitment letter described above.
The Series B Preferred Stock accrue dividends in kind at a rate of 11.0% per annum, subject to increase to a maximum total net leverage ratio requirement tested quarterly, commencing withof 16.0% per annum upon the fiscal quarter ending March 31, 2023, notoccurrence of certain events. The Series B Preferred Stock is subject to exceed: 6.50 to 1.00. The Senior Term Loan Credit Agreement also contains a financial covenant that stipulatesvoluntary redemption by the Company will not make capital expenditures exceeding $27.5 million during any fiscal year. Toat our option and subject to mandatory redemption upon the extent thatfirst to occur of a change in control and the amount of capital expenditures is less than $27.5 million in any fiscal year, up to 50%one-year anniversary of the difference may be carried forward and used for capital expenditures in the immediately succeeding fiscal year.
Following a one-year no-call period,maturity of the Senior Term Loan, Credit Agreement provides for a 2.5% call premium for years two through five and no premium thereafter. All outstanding borrowings under the Senior Term Loan Credit Agreement mature onwhich is February 2, 2027.
All2028. The Series B Preferred Stock, after the occurrence of the indebtedness under the Senior Term Loan Credit Agreement is andcertain events, will be guaranteed by the Company’s existingconvertible into shares of our common stock, par value $0.01 per share, at Corre’s option and future United States, Canadian and Mexican subsidiaries and certain other foreign subsidiaries and is and will be secured by substantially all of the assets of the Company and such guarantors.subject to shareholder approval.
Covenant and LiquidityOther Matters
The Loan Agreement governing our Revolving Credit Facility contains various negative and affirmative covenants and other requirements affecting us and our subsidiaries, including restrictions on incurrence of debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, asset dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The Revolving Credit Facility does not include any financial maintenance covenants other than a financial covenant that stipulates the Company will not make capital expenditures exceeding $30.0 million during any fiscal year.
We are subject to variable interest rates on our Senior Term Loan Credit Agreement and Revolving Credit Facility.Facility. At SeptemberJune 30, 2021,2022, 1-Month LIBOR and 3-Month LIBOR approximated 0.08%1.79% and 0.13%2.29%, respectively.
The Company is in compliance with all of its financial covenants as of September At June 30, 2021.2022, the Adjusted Term SOFR approximated 1.09%.
In addition to our long-term debt, we have other cash commitments related to leases. We account for these lease transactions asFor the six months ended June 30, 2022 and 2021 rent expense on our operating leases and rent expense related thereto for the nine months ended September 30, 2021 and 2020 was $10.7$7.2 million and $11.5$7.6 million, respectively. We expect to continue to utilize leasing as a financing strategy in the future to meet capital expendituresupport our business and operational needs and toas well as reduce debt levels.
Refer to Note 8,7, Long-term Debt, Note 8, Redeemable Preferred Stock, and Note 9, Leases, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information.
Consolidated EBITDA
Consolidated EBITDA (defined as “Consolidated EBITDA” in our Senior Term Loan Agreement) is a comparable measure to how the Company assesses performance. As discussed further in the Segment Information and Supplemental Analysis section above, we use certain non-GAAP financial measures to assess performance and measure our covenant compliance in accordance with the Senior Term Loan Agreement, which includes Adjusted EBITDA at the operating segment level. For the measurement of our Senior Term Loan Agreement financial covenants, the definition of Consolidated EBITDA limits the amount of non-recurring expenses or costs including restructuring, moving and severance that can be excluded to $10 million in any cumulative four fiscal quarter period. Similarly, the definition limits the amount of fees, costs and expenses incurred in connection with any proposed asset sale, offering of equity interests or any indebtedness, lender agent fees, and fees in connection with the maintenance and/or forgiveness of the PPP Loan,loan from PNC Bank, National Association for $8.7 million, pursuant to the Paycheck Protection Program (the “PPP Loan”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act, in the aggregate, that can be excluded to $8 million in any cumulative four fiscal quarter period.
The reconciliations of net income (loss) attributable to Horizon Global to EBITDA, EBITDA to Adjusted EBITDA and Adjusted EBITDA to Consolidated EBITDA are as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Last Twelve Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, | | Last Twelve Months Ended June 30, |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| | (dollars in thousands) | | (dollars in thousands) | | (dollars in thousands) | | (dollars in thousands) | | (dollars in thousands) | | (dollars in thousands) |
| Net (loss) income attributable to Horizon Global | Net (loss) income attributable to Horizon Global | | $ | (2,470) | | | $ | 1,930 | | | $ | (4,400) | | | $ | (15,990) | | | $ | (31,150) | | | $ | 15,160 | | | $ | (21,400) | | | $ | (62,730) | | | $ | 41,330 | | Net (loss) income attributable to Horizon Global | | $ | (22,200) | | | $ | 1,290 | | | $ | (23,490) | | | $ | (48,880) | | | $ | (13,520) | | | $ | (35,360) | | | $ | (67,080) | | | $ | (17,000) | | | $ | (50,080) | |
| Net loss attributable to noncontrolling interest | Net loss attributable to noncontrolling interest | | (300) | | | (340) | | | 40 | | | (970) | | | (1,010) | | | 40 | | | (1,380) | | | (1,410) | | | 30 | | Net loss attributable to noncontrolling interest | | (230) | | | (330) | | | 100 | | | (500) | | | (670) | | | 170 | | | (1,230) | | | (1,420) | | | 190 | |
| Net (loss) income | Net (loss) income | | $ | (2,770) | | | $ | 1,590 | | | $ | (4,360) | | | $ | (16,960) | | | $ | (32,160) | | | $ | 15,200 | | | $ | (22,780) | | | $ | (64,140) | | | $ | 41,360 | | Net (loss) income | | $ | (22,430) | | | $ | 960 | | | $ | (23,390) | | | $ | (49,380) | | | $ | (14,190) | | | $ | (35,190) | | | $ | (68,310) | | | $ | (18,420) | | | $ | (49,890) | |
| Interest expense | Interest expense | | 6,970 | | | 7,560 | | | (590) | | | 21,000 | | | 23,970 | | | (2,970) | | | 28,710 | | | 31,970 | | | (3,260) | | Interest expense | | 8,310 | | | 6,980 | | | 1,330 | | | 15,980 | | | 14,030 | | | 1,950 | | | 29,920 | | | 29,300 | | | 620 | |
| Income tax expense (benefit) | Income tax expense (benefit) | | 410 | | | 100 | | | 310 | | | 2,810 | | | 170 | | | 2,640 | | | 1,060 | | | (8,320) | | | 9,380 | | Income tax expense (benefit) | | 450 | | | 1,400 | | | (950) | | | 680 | | | 2,400 | | | (1,720) | | | (1,880) | | | 750 | | | (2,630) | |
| Depreciation and amortization | Depreciation and amortization | | 5,210 | | | 5,620 | | | (410) | | | 15,930 | | | 16,150 | | | (220) | | | 22,690 | | | 21,050 | | | 1,640 | | Depreciation and amortization | | 4,320 | | | 5,220 | | | (900) | | | 8,940 | | | 10,720 | | | (1,780) | | | 20,220 | | | 23,100 | | | (2,880) | |
| EBITDA | EBITDA | | $ | 9,820 | | | $ | 14,870 | | | $ | (5,050) | | | $ | 22,780 | | | $ | 8,130 | | | $ | 14,650 | | | $ | 29,680 | | | $ | (19,440) | | | $ | 49,120 | | EBITDA | | $ | (9,350) | | | $ | 14,560 | | | $ | (23,910) | | | $ | (23,780) | | | $ | 12,960 | | | $ | (36,740) | | | $ | (20,050) | | | $ | 34,730 | | | $ | (54,780) | |
| Net loss attributable to noncontrolling interest | Net loss attributable to noncontrolling interest | | 300 | | | 340 | | | (40) | | | 970 | | | 1,010 | | | (40) | | | 1,380 | | | 1,410 | | | (30) | | Net loss attributable to noncontrolling interest | | 230 | | | 330 | | | (100) | | | 500 | | | 670 | | | (170) | | | 1,230 | | | 1,420 | | | (190) | |
| Loss from discontinued operations, net of tax | | — | | | — | | | — | | | — | | | 500 | | | (500) | | | — | | | 500 | | | (500) | | |
| EBITDA from continuing operations | | $ | 10,120 | | | $ | 15,210 | | | $ | (5,090) | | | $ | 23,750 | | | $ | 9,640 | | | $ | 14,110 | | | $ | 31,060 | | | $ | (17,530) | | | $ | 48,590 | | |
| EBITDA attributable to Horizon Global | | EBITDA attributable to Horizon Global | | $ | (9,120) | | | $ | 14,890 | | | $ | (24,010) | | | $ | (23,280) | | | $ | 13,630 | | | $ | (36,910) | | | $ | (18,820) | | | $ | 36,150 | | | $ | (54,970) | |
| Adjustments pursuant to Senior Term Loan Agreement: | Adjustments pursuant to Senior Term Loan Agreement: | | | | | | | | | | | | | | | | | | | Adjustments pursuant to Senior Term Loan Agreement: | | | | | | | | | | | | | | | | | | |
| Losses on sale of receivables | Losses on sale of receivables | | 280 | | | 420 | | | (140) | | | 780 | | | 960 | | | (180) | | | 1,230 | | | 1,270 | | | (40) | | Losses on sale of receivables | | 410 | | | 270 | | | 140 | | | 660 | | | 500 | | | 160 | | | 1,120 | | | 1,370 | | | (250) | |
| Debt extinguishment losses | Debt extinguishment losses | | — | | | — | | | — | | | 11,650 | | | — | | | 11,650 | | | 11,650 | | | — | | | 11,650 | | Debt extinguishment losses | | — | | | — | | | — | | | — | | | 11,650 | | | (11,650) | | | — | | | 11,650 | | | (11,650) | |
| Non-cash equity grant expenses | Non-cash equity grant expenses | | 880 | | | 870 | | | 10 | | | 2,590 | | | 2,190 | | | 400 | | | 3,400 | | | 2,520 | | | 880 | | Non-cash equity grant expenses | | 800 | | | 850 | | | (50) | | | 2,050 | | | 1,710 | | | 340 | | | 3,860 | | | 3,390 | | | 470 | |
| Other non-cash expenses or losses (gains) | | 1,400 | | | (1,080) | | | 2,480 | | | 5,320 | | | 670 | | | 4,650 | | | 3,840 | | | (1,180) | | | 5,020 | | |
| | Other non-cash expenses or losses | | Other non-cash expenses or losses | | 2,870 | | | 1,790 | | | 1,080 | | | 7,310 | | | 3,920 | | | 3,390 | | | 10,130 | | | 1,360 | | | 8,770 | |
| Fees, costs and expenses in connection with the term loan and ABL credit agreements | | Fees, costs and expenses in connection with the term loan and ABL credit agreements | | 120 | | | — | | | 120 | | | 120 | | | — | | | 120 | | | 120 | | | — | | | 120 | |
Lender agent related professional fees, costs, and expenses(a) | Lender agent related professional fees, costs, and expenses(a) | | 30 | | | — | | | 30 | | | 130 | | | 380 | | | (250) | | | 130 | | | 460 | | | (330) | | Lender agent related professional fees, costs, and expenses(a) | | 70 | | | 90 | | | (20) | | | 80 | | | 100 | | | (20) | | | 160 | | | 100 | | | 60 | |
Non-recurring expenses or costs(b) | Non-recurring expenses or costs(b) | | 250 | | | 700 | | | (450) | | | (570) | | | 5,180 | | | (5,750) | | | (340) | | | 16,640 | | | (16,980) | | Non-recurring expenses or costs(b) | | 990 | | | 130 | | | 860 | | | 2,580 | | | (820) | | | 3,400 | | | 4,020 | | | 110 | | | 3,910 | |
| | Non-cash losses (gains) on asset sales | | 20 | | | (10) | | | 30 | | | 30 | | | 80 | | | (50) | | | 40 | | | (70) | | | 110 | | |
| | Non-cash losses on asset sales | | Non-cash losses on asset sales | | 50 | | | 10 | | | 40 | | | 50 | | | 10 | | | 40 | | | 1,510 | | | 10 | | | 1,500 | |
| Debt extinguishment gains | | Debt extinguishment gains | | — | | | — | | | — | | | — | | | — | | | — | | | (7,530) | | | — | | | (7,530) | |
| Other | Other | | — | | | 10 | | | (10) | | | (30) | | | (10) | | | (20) | | | (40) | | | 480 | | | (520) | | Other | | (40) | | | (10) | | | (30) | | | (40) | | | (30) | | | (10) | | | (40) | | | (30) | | | (10) | |
| Adjusted EBITDA | Adjusted EBITDA | | $ | 12,980 | | | $ | 16,120 | | | $ | (3,140) | | | $ | 43,650 | | | $ | 19,090 | | | $ | 24,560 | | | $ | 50,970 | | | $ | 2,590 | | | $ | 48,380 | | Adjusted EBITDA | | $ | (3,850) | | | $ | 18,020 | | | $ | (21,870) | | | $ | (10,470) | | | $ | 30,670 | | | $ | (41,140) | | | $ | (5,470) | | | $ | 54,110 | | | $ | (59,580) | |
Non-recurring expense limitation(a)(b) | Non-recurring expense limitation(a)(b) | | N/A | | N/A | | N/A | | N/A | | N/A | | N/A | | N/A | | (6,640) | | | 6,640 | | Non-recurring expense limitation(a)(b) | | N/A | | N/A | | N/A | | N/A | | N/A | | N/A | | N/A | | N/A | | N/A |
| Other | Other | | — | | | (10) | | | 10 | | | 30 | | | 10 | | | 20 | | | 40 | | | (480) | | | 520 | | Other | | 40 | | | 10 | | | 30 | | | 40 | | | 30 | | | 10 | | | 40 | | | 30 | | | 10 | |
| Consolidated EBITDA | Consolidated EBITDA | | $ | 12,980 | | | $ | 16,110 | | | $ | (3,130) | | | $ | 43,680 | | | $ | 19,100 | | | $ | 24,580 | | | $ | 51,010 | | | $ | (4,530) | | | $ | 55,540 | | Consolidated EBITDA | | $ | (3,810) | | | $ | 18,030 | | | $ | (21,840) | | | $ | (10,430) | | | $ | 30,700 | | | $ | (41,130) | | | $ | (5,430) | | | $ | 54,140 | | | $ | (59,570) | |
(a) Fees, costs and expenses incurred in connection with any proposed asset sale, offering of equity interests or any indebtedness, lender agent fees, and fees in connection with the maintenance and/or forgiveness of the PPP Loan are not to, in aggregate, exceed $8 million in adjustments in determining Consolidated EBITDA in any four fiscal quarter period.
(b) Non-recurring expenses or costs including restructuring, moving and severance are not to, in aggregate, exceed $10 million in adjustments in determining Consolidated EBITDA in any four fiscal quarter period.
Credit Rating
The Company’s credit agreements do not require that we maintain a credit rating.
Outlook
Our business remains susceptible to economicmacroeconomic conditions that couldmay adversely affect our future results, including potential negative impacts of the COVID-19 pandemic.current inflationary environment and increased energy prices, volatile interest rates, ongoing global semiconductor shortage, as well as transportation and other logistic constraints. The trend of customer orders in the economies that most significantly affect our demandconflict between Russia and Ukraine has been strong, including the United States and Europe. However, we have experienced rising pricing for certain raw materials, including steel, and while the Company endeavors to recover incremental input costs through pricing actions, the recoveries generally occur over time and are not guaranteed. In addition, recent macroeconomic factors, such asalso placed added constraints on shipping container availability, port congestion and the global microchip shortageautomotive supply chain that may adversely impact our business. These factors have resulted incontributed to a delay ofin receiving raw materialscertain critical components required to fulfill orders by the Company or some of our OE customers, which has resulted in retiming some customer orders to future periods. We also continue to experience elevated costs for certain raw materials, including steel, and while we endeavor to recover incremental input costs through pricing recovery initiatives, the recoveries generally occur over time and are not guaranteed. We also continue to monitor the ongoing COVID-19 pandemic and potential impacts to our operations, employees, customers and other stakeholders, as well as prioritizing the health and safety of our employees. We continue to monitor these supply constraintsmacroeconomic factors and implement mitigating actions where possible, and remain committed to fulfilling and delivering our customers’ orders driven by the strong product demand we have experienced.customer orders.
We also remain focused on maintaining liquidity to fund our operations, while considering future maturities in our capital structure, which have been addressed and will continue to be addressed as the Company continues to execute upon itsour business plan and operational improvement initiatives in 2021.which are continuously ongoing. These initiatives were put in place to streamline and simplify itsour operations and provide a roadmap to achieve our strategic priorities of margin expansion, liquidity management and organic business growth.
We believe the unique strategic footprint we enjoy in our market space will benefit usthe Company as our OE customers continue to demonstrate a preference for stronger relationships with few suppliers. We believe that our strong brand positions,recognition, portfolio of product offerings, and existing customer relationships present a long-term opportunity for usthe Company and provide leverage to see balanced growth in OE, aftermarket and retail businesses. That position and brand recognition allows usthe Company flexibility to bring our products to market in various channels that we believe provide usthe Company the ability to leverage our current operational footprint to meet or exceed our customer demands.demand.
Impact of New Accounting Standards
See Note 2, New Accounting Pronouncements, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q.
Critical Accounting Policies
Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates that affect both the amounts and timing of the recording of assets, liabilities, net sales and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.
There were no material changes to the items that we disclosed as our critical accounting policies in Item 7,8, “Management’s DiscussionFinancial Statements and Analysis of Financial Condition and Results of OperationsSupplementary Data,” in our Annual Report on Form 10-K for the twelve months ended December 31, 2020.2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and ChiefPrincipal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of disclosure controls and procedures
As of September 30, 2021,the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by management, with the participation of the Chief Executive Officer and ChiefPrincipal Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act. The Company’s disclosure controls and procedures are designed only to provide reasonable assurance that they will meet their objectives. Based upon that evaluation, the Chief Executive Officer and ChiefPrincipal Financial Officer concluded that, as of SeptemberJune 30, 2021,2022, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that they would meet their objectives.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended SeptemberJune 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to claims and litigation in the ordinary course of business, but we do not believe that any such claim or litigation is likely to have a material adverse effect on our financial position, results of operations, or cash flows. For a description of risks related to various legal proceedings and claims, see the section entitled “Risk Factors,” in our Annual Report on Form 10-K for the twelve months ended December 31, 2021. For additional information regarding legal proceedings, refer to Note 10,11, Contingencies, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterlyour Annual Report on Form 10-Q.10-K for the twelve months ended December 31, 2021.
Item 1A. Risk Factors
A discussion of our risk factors, which could materially affect our business, financial condition or future results, can be found in the section entitled “Risk Factors,” in our Annual Report on Form 10-K for the twelve months ended December 31, 2020. There have been no significant changes in our2021, which risk factors disclosedare supplemented with the disclosure below.
We are currently out of compliance with the New York Stock Exchange’s (“NYSE”) minimum market capitalization requirement and are at risk of the NYSE delisting our common stock, which would have an adverse impact on the trading volume, liquidity and market price of our common stock.
On July 25, 2022, we were notified by the NYSE that we were not in compliance with the continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual because our 2020 Form 10-K.average market capitalization was less than $50 million over a consecutive 30 trading-day period and our stockholders’ equity was less than $50 million. We are taking actions to meet the continued listing standards of the NYSE to cure the market capitalization condition, which we expect will ultimately lead to a recovery of our common stock price and market capitalization. Our common stock could also be delisted if our average market capitalization over a consecutive 30 day-trading period is less than $15 million, in which case we would not have an opportunity to cure the deficiency, our common stock would be suspended from trading on the NYSE immediately, and the NYSE would begin the process to delist our common stock, subject to our right to appeal under NYSE rules. We cannot assure you that any appeal we undertake in these or other circumstances will be successful. While we are working to cure this potential deficiency and remain in compliance with this continued listing standard, there can be no assurance that we will be able to cure this potential deficiency or if we will cease to comply with another continued listing standard of the NYSE.
A delisting of our common stock from the NYSE could negatively impact us as it would likely reduce the liquidity and market price of our common stock; reduce the number of investors willing to hold or acquire our common stock; and negatively impact our ability to access equity markets and obtain financing.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits.
Exhibits Index:
| | | | | |
| 3.1(b) | |
| 3.2(a) | |
10.1*3.3(c) | |
| 10.1(d)* | ifthEighth Amendment to Loan and Security Agreement dated September 17, 2021,April 4, 2022, by and among Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers, Horizon Global Corporation, Horizon Global Company LLC, Cequent Electrical Products de Mexico, S. de R.L. de C.V., and Cequent Sales Company de Mexico, S. de R.L. de C.V., as guarantors, the lenders party thereto and Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLCLLC), as agent for the Lenders. |
| 10.2 | |
| 10.3* | Ninth Amendment to Loan and Security Agreement dated June 30, 2022, by and among Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers, Horizon Global Corporation, Horizon Global Company LLC, Cequent Electrical Products de Mexico, S. de R.L. de C.V., and Cequent Sales Company de Mexico, S. de R.L. de C.V., as guarantors, the lenders party thereto and Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC), as agent for the Lenders. |
| 31.1 | |
| 31.2 | |
| 32.1 | |
| 32.2 | |
| 101.INS | Inline XBRL Instance Document. (not part of filing) |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
| | | | | | | | |
| (a) | | Incorporated by reference to the Exhibit filed with our Current Report on Form 8-K filed on February 20, 2019 (File No. 001-37427). |
| (b) | | Incorporated by reference to the Exhibit filed with our Quarterly Report on Form 10-Q filed on August 8, 2019 (File No. 001-37427). |
| (c) | | Incorporated by reference to the Exhibit filed with our Current Report on Form 8-K filed on June 30, 2022 (File No. 001-37427). |
| (d) | | Incorporated by reference to the Exhibit filed with our Quarterly Report on Form 10-Q filed on May 5, 2022 (File No. 001-37427). |
* Certain exhibits and schedules are omitted pursuant to Item 601(a)(5) of Regulation S-K, and the Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits and schedules upon request.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | HORIZON GLOBAL CORPORATION (Registrant) |
| | | | |
| | | | /s/ DENNIS E. RICHARDVILLE |
| | | | |
| Date: | November 4, 2021August 9, 2022 | By: | | Dennis E. Richardville ChiefPrincipal Financial Officer
|